Gas price rally buoys North American LNG developers looking to 2021

Gas price rally buoys North American LNG developers looking to 2021

Natural gas futures in Europe and Asia have climbed to their highest levels in more than a year

North American LNG exporters are sounding more confident about the prospects for new projects in 2021 due to a sharp rally in prices driven by surging Asian demand, even as most industry analysts expect next year to be another difficult one.

Natural gas futures in Europe and Asia have climbed to their highest levels in more than a year due to a sharp increase in demand late in 2020, especially out of China, where buyers have scrambled to secure supply. Asian nations have driven record growth in liquefied natural gas (LNG) as they seek to replace dirtier coal plants and fuel growing energy consumption.

Numerous projects slated for groundbreaking in North America were put off in the last two years due to historically weak prices and worries about oversupply. That concern has dissipated after production dropped this year in Australia, Malaysia, Norway and Qatar, some of the world’s largest LNG producers. With spot prices in Asia hitting a six-year high, LNG operators are seeing greater interest in long-term supply deals that would allow developers to build new export plants.

Tom Mason, general counsel and president of LNG at Energy Transfer LP, which is developing an export plant at its Lake Charles import facility in Louisiana, said the rise in prices “has translated into a pickup in traction with customers for long-term commitments for LNG purchases.”

At the start of 2020, a dozen or so developers said they planned to make final investment decisions (FIDs) to build new projects in the United States, Canada and Mexico by the end of this year.

Only one of those export plants went forward – Sempra Energy’s $2 billion addition to its Costa Azul LNG import facility in Mexico. All other proposals were delayed because not enough customers were willing to sign long-term deals to finance the multibillion-dollar projects with spot prices so low.

Gas futures in Europe and Asia collapsed to record lows in the spring due to coronavirus demand destruction before rebounding in recent weeks to their highest in over a year.

There are now 14 North American projects awaiting FID in 2021, most carried over from 2020, but analysts do not expect all to go forward next year.

Global LNG demand has risen by about 10% each year over the past three years to hit an all-time high of around 355 million tonnes per annum in 2019. Some analysts project that growth rate will slow to 3% to 4% a year through 2025 and then decline further as governments phase out fossil fuels to meet net-zero carbon emissions policies.

LNG developers, however, say that the recent dearth of construction will leave the LNG market undersupplied in coming years, especially as demand keeps rising in Asia.

“The current forecasts have not taken into account recent announcements out of Japan, China and South Korea that will shift more power generation from coal to gas,” said Doug Shanda, CEO of Mexico Pacific Ltd.

Mexico Pacific plans to make a decision in late 2021 or early 2022 on whether to build an LNG export plant on Mexico’s Pacific coast.

Analysts said “brownfield” projects built at existing LNG terminals like Energy Transfer’s Lake Charles or Sempra’s Costa Azul have a better chance of going forward than “greenfield” projects. Five of the six big operating U.S. LNG export plants are at brownfield sites.

“Brownfield projects tend to involve less cash and shorter development lead times,” said Henning Gloystein, director of energy, climate & resources at Eurasia Group in Singapore. “It will indeed be tough for most greenfield projects in North America to get FID in 2021.”

https://energy.economictimes.indiatimes.com/news/oil-and-gas/gas-price-rally-buoys-north-american-lng-developers-looking-to-2021/79954797

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