Gas producers are basking in the glow of prices that make the economics of producing LNG look much more attractive than during the past two years. In recent weeks, Asian LNG prices have persisted above 8 $/mmbtu for summer delivery and 10 $/mmbtu for winter delivery.
There has been a resurgence of activity on LNG supply projects in the last few months as a result of more buoyant prices. There are reports of buyers coming back to the market that are not shying away from long-term deals, pointing to a renewed appetite for longer term supply. While there are new reported deals, they tend to be for smaller volumes—a 1 Mtpa deal becoming typical—and have much more flexibility for what the buyer can do with the purchased LNG.
Of the projects that are now talking up a final investment decision (FID) by the end of the decade, these fall into one of three distinct types. The first is made up of planned expansions to existing facilities, which tend to have lower capital costs, taking advantage of existing infrastructure and gas production (Qatar’s new three trains, Corpus Christi T3, Sabine Pass T6, PNG LNG T3-5).
Secondly there are brownfield sites with low capital costs, which remain plentiful in the US, but the reasonably limited balance sheets of the developers mean they rely on having off-take agreements covering a large part of the facilities’ production. Such projects include Venture Global’s Calcasieu Pass project, Tellurian’s Driftwood LNG and Pembina’s Jordan Cove LNG.
Thirdly, there are new greenfield sites with largely stranded upstream gas assets for which project FIDs have been delayed during the last few years but are now seeing a resurgence in interest. These projects often have LNG buyers involved as partners with an interest in having equity in the upstream LNG. This includes the LNG Canada project and the Mozambique projects.
We have identified some 77 Mtpa of LNG supply capacity that project developers have said is close to FID, and for which we think an FID before 2020 has a greater than 50% chance of happening. An FID in this timeframe suggests a start-up date of exports no sooner than 2023. Given previous experience with big projects—and some of these new projects fall into that category—a year or two of delays to start-up dates is likely, so the global LNG market could see a wave of supply hit the market around 2024-2026.
We also identified a further 76 Mtpa of LNG supply capacity for which there is an outside (20-50%) chance of an FID by the decades end. Of those, we expect most of them to either see FIDs early in the next decade or to be cancelled. If an FID is granted, these projects could add another wave of supply in the period beyond 2026. This suggests that any tightening of the global market from around 2022 could be relatively short-lived.