Wave of new LNG export plants threatens to knock gas prices
Wave of new LNG export plants threatens to knock gas prices
By Liz Hampton, Marianna Parraga March 14, 2023 reuters.com
HOUSTON -A flood of liquefied natural gas (LNG) export projects due online worldwide in mid-decade will vie against lower-cost renewable energy and a revived nuclear power sector, which could rock gas prices and hurt some proposed projects, analysts say.
Proposed and approved new LNG plants would boost LNG supply by 67% increase to 636 million tonnes per annum (mtpa) by 2030 from 2021 levels, potentially saturating the gas market.
“There’s over a trillion dollars of natural gas infrastructure being built in the world today. There’s a set secular shift and natural gas that is here to stay,” said Jack Fusco, CEO of LNG exporter Cheniere Energy at a conference in Houston last week.
In Qatar, a massive LNG expansion project will add 49 mtpa by 2027. U.S. projects could add 125 mtpa (16.4 billion cubic feet per day) of capacity by late 2027, according to data compiled by BTU Analytics, a FactSet company.
In a taste of the potential volatility those projects might face, LNG prices last year soared on European demand, then slid as storage filled and customers pushed back against the high prices and switched to other energy sources.
That shift is only going to accelerate. In 2021 alone, wind and solar’s share of global power generation jumped to more than 10% from just 1% a year earlier, climate think tank Ember estimates.
At the same time, nuclear is rebounding: Japan aims to boost nuclear’s share of its power to at least 20% by 2030 from less than 7% last year. France is proposing to build six nuclear reactors by 2035.
DEMAND UNCERTAINTY
Analysts see LNG prices remaining strong until around 2027, but after that they may fall as the demand outlook is hazy.
“One big uncertainty the industry is focused on is how much damage the high prices has done to medium-term gas demand,” said Michael Stoppard, who leads global gas strategy at S&P Global.
S&P Global pushed back its demand growth outlook for LNG from emerging markets by two years due to the spike in prices.
LNG has “acquired a reputation as a costly and unreliable fuel” that could jeopardize plans to build new import terminals in Asia, the region with the highest demand outlook, the Institute for Energy Economics and Financial Analysis said in a report last month.
China cut its LNG purchases by 20% last year on COVID-19 curbs and price volatility. India, Pakistan and Bangladesh also slashed combined LNG purchases by 16% last year, IEEFA said.
PROJECTS AT RISK
In the U.S., gas markets saw a volatile start to the year after a relatively mild northern hemisphere winter and higher LNG prices which led to conservation sent U.S. prices below the cost of new production and led to a retrenchment in drilling.
Muqsit Ashraf, who leads Accenture Strategy, expects solid demand to support LNG prices through around 2027.
“What happens after that is more of a debate and depends on how investment decisions play out this year,” said Ashraf, who previously headed Accenture’s global energy practice.
Baker Hughes, a major LNG equipment supplier, warned in January that cost inflation and higher interest rates had slowed the pace of LNG final investment decisions.
Still, it anticipates “significant growth” in project approvals this year. The year’s first came on Monday, with Venture Global LNG authorizing the second-phase of its 20 mtpa Plaquemines LNG project.
The risk is projects will come online just as demand growth slows and hit global LNG prices.
“When you hear people say ‘there is no way we will overbuild this,’ that’s when things get over-built,” said Alan Armstrong, CEO of U.S. gas pipeline operator Williams Companies which supplies gas to LNG exporters.
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Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant on
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Absolutely. The race to FID is now on. Some will make it, some will not. At this point, I think Tellurian may be in last place. How that plays out may be of interest to all their lessors and Working Interests.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Financial hurdles rise for green-lighting new US LNG plants
March 29, 2023 reuters.com By Scott Disavino
NEW YORK, March 29 (Reuters) - Financial hurdles are rising for U.S. liquefied natural gas (LNG) project developers aiming to get their proposed export terminals off the ground as investors become more demanding.
The banking crisis added a new snag to rising interest rates and supply chain shortages for these multi-billion-dollar projects, which months ago were seen as sure bets. Two of four new projects aiming for a financial okay this quarter have been pushed back, and others will face that higher bar, said analysts.
The pair that have gone ahead - Venture Global LNG's project in Louisiana and Sempra Energy's (SRE.N) in Texas - embody what analysts say have met the new requirements: less reliance on developer's equity and more on fully contracted capacity.
Both projects won approvals with strong corporate financing - $7.8 billion for Venture Global and $6.8 billion for Sempra - noted Jefferies Group Managing Director of Equities Research Lloyd Byrne.
And the pair address volatile gas-price risk by having about 90% of production capacity under long-term deals, Byrne wrote in a report this week. Rivals who are unable to recruit a full contingent of buyers face "a project stalling or outright cancellation," he added.
NEW DELAYS
Eleni Papadopoulou, lead natural gas analyst at commodity data and analytics firm Kpler, said the banking crisis that emerged earlier this month raised "concerns that banking lending activity might be pulled back," she said, and "delay further FIDs," using the acronym for financial investment decision approvals.
The proposed NextDecade and Energy Transfer LP export terminals - the two other projects previously aiming for FID in the first quarter - have been repeatedly delayed due to rising construction, labor and borrowing costs, and by the recently narrowing spread between U.S. and global natural gas prices.
Energy Transfer pointed to February comments by its co-CEO Thomas Long that it was optimistic its LNG project would go ahead.
On Tuesday, French bank Societe Generale SA confirmed it last year had withdrawn as lead bank for NextDecade's Rio Grande LNG project.
NextDecade said it had taken on MUFG Bank as a financial advisor last year and retained Macquarie Capital as a second advisor.
'HARDER SELL'
This month, NextDecade said it aimed for a financial go-ahead for the first phase of Rio Grande before the end of next quarter. Two months earlier it said it expected the decision by March 30.
Soaring inflation means "LNG exporters need to recover their costs via higher liquefaction fees, which is a harder sell now with gas prices collapsing," said Stephen Ellis, an energy strategist at Morningstar Research Services LLC.
Demand for U.S. LNG increased after several countries slowed purchases of Russian energy and imposed sanctions on Moscow after Russia's invasion of Ukraine in February 2022.
After hitting record highs of around $90 per million British thermal units (mmBtu) in Europe and $70 in Asia last summer, gas prices this year plunged to around $13 in Europe and Asia. U.S. gas prices dropped from a high near $10 last summer to $2 today.
"Developers have re-evaluated their cost structure and profitability and that, I think, is what is delaying some of these final investment decisions," said Ade Allen, an analyst at energy consulting firm Rystad Energy.
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