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Released October 23, 2020 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--When economists assess the short- and long-term prospects for a given industry or product, they often invoke a famous quip from British economist John Maynard Keynes: "In the long run, we are all dead." Meaning that the short term matters much more than the long term, regardless of how each term is defined. Whether the short term refers to today's social media sensation or next quarter's financial results, the farther out one goes in projections, the less it means compared to close-in projections.
One thinks of Keynes when considering the liquefied natural gas (LNG) market. While the world is expected to sharply increase its use of liquefied natural gas (LNG) over the next 15 years, that sunny outlook is cold comfort to the $75 billion of planned U.S. LNG export projects that are scheduled to begin construction by the end of 2021.
Most of those proposed projects have been delayed for years, first due to permitting issues but more recently due to the volatile LNG markets, which have caused some companies to delay making the multibillion-dollar decision to build an export facility. In effect, those developers are deferring their decision until markets firm and prices rise. Moody's Investors Service, a division of Moody's Corporation (NYSE:MCO) (New York, New York), is the latest observer to cast doubt on the near-term prospects for LNG project development in the U.S. But the credit-rating firm also threw some cold water on the long-term prospect for domestic LNG development.
In an October 15 report, "LNG Competition Intensifies Amid Reduced Demand Expectations," Moody's said. "The pandemic-related downturn has trimmed expectations of growth in fundamental long-term demand for LNG in the next five years and has increased investment risks on future capacity expansion projects designed to meet LNG demand beyond 2025."
The agency continued, "The U.S. is still within reach of becoming the world's largest LNG exporter by the mid-2020s. But virtually all of these new U.S. projects are still awaiting contract backing before beginning construction, and today's oversupplied global LNG markets will likely delay much of this proposed capacity until at least well into the decade."
Moody's observed that 14 U.S. LNG projects have secured federal permits but have not advanced to construction.
"The U.S. has a number of 'zombie' LNG export terminal projects out there--on paper, they're still alive, but in reality, they are no longer viable projects," commented Jesus Davis, IIR's North American research specialist for the Oil & Gas Production, Pipelines and Terminals industries. "They got overtaken by market events. Many got started too late, after the first wave of project development. In a best-case scenario, a few of these projects will get a final investment decision in the next year or two and will be operating by the late-2020s. But most won't."
Four of these proposed terminals -- the Jordan Cove project in Oregon, the Gulf LNG Liquefaction project in Mississippi, the Alaska LNG Liquefaction Plant in Alaska and the Calcasieu Pass LNG Production Terminal in Louisiana -- are on the list of projects that the Department of the Interior (DOI) (Washington, D.C.) is trying to expedite. For more on that, see September 8, 2020, article - U.S. Interior Department Seeks to Expedite Energy, Mining Projects.
Earlier this month, Davis spoke on an LNG webcast sponsored by Industrial Info Resources. According to Industrial Info's global market intelligence platform, 51.75 million tons per annum (MTPA) of LNG export capacity were added in the U.S. between 2018 and 2020, which escalated the U.S. into the world's No. 3 LNG exporter. Right now, there is about 331 million tons of export capacity being developed in the U.S., most of which will not come online. North America has about 20 million MTPA of LNG export capacity under construction. For more on that, see October 8, 2020, article - LNG Webinar: Short Term Hurting, but Long-Term Demand Growth Remains in Place.
Davis and his colleague, Shane Mulins, Industrial Info's Vice President of Product Development, saw a better long-term outlook for U.S. LNG exports compared to Moody's. On IIR's October 7 webcast, Mullins said: "The long-term demand fundamentals are still in place. Global demand for LNG is still expected to be 550 to 600 metric tons per annum by 2035, and to produce that, we're going to need to have 650-700 MTPA of nameplate capacity in place. Today though, there's 430 MTPA that's already operational ... Despite the challenges facing LNG developers this year, we do see [financial investment decision] approvals likely in the shorter term."
Getting a permit issued faster is only one part of the challenge facing LNG developers. The other, and gut-wrenching, decision is making a financial commitment to build a multibillion-dollar facility in the face of weak pricing and significant new capacity coming online in other countries. Strong future demand, as laid out in the long-term energy scenarios crafted by BP Plc (NYSE:BP) (London, United Kingdom) is encouraging, but the LNG world has changed significantly from 2014, when LNG prices fetched as much as $15 per million British thermal units (MMBtus) in Asian markets. Over the last 12 months, U.S. LNG prices have averaged about $5 per MMBtu, though some shipments have been significantly less than that.
For more on BP's outlook for rising global LNG demand, see September 22, 2020, article - Natural Gas and LNG Fare Better than Coal or Oil in Three BP Scenarios.
U.S. LNG exports have fallen in recent months, as the COVID-19 pandemic has cut into global demand. While the U.S. has about 8 billion cubic feet per day (Bcf/d) of LNG export capacity, actual shipments have slumped from approximately 8 Bcf/d in early 2020 to less than 4 Bcf/d as of the late summer, according to DoE. Next year, U.S. export capacity is slated to reach about 10 Bcf/d, the agency said.
Australia and Qatar are two of several countries that are expanding their LNG export capacity, leading to more competition for contracts. Although U.S. natural gas costs are low and projected to stay that way for a while, low-cost feedstock gas might not be enough to offset the hefty travel requirements to get an LNG vessel to Asian markets.
"Developers who made their multibillion-dollar commitments four, five or six years ago are capturing U.S. export volumes today, though everyone has taken a hit with COVID-19," Davis said. "Going forward, we expect the world will need added LNG export capacity. As it was in the past, it will be in the future: the early bird will get the LNG worm."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
One thinks of Keynes when considering the liquefied natural gas (LNG) market. While the world is expected to sharply increase its use of liquefied natural gas (LNG) over the next 15 years, that sunny outlook is cold comfort to the $75 billion of planned U.S. LNG export projects that are scheduled to begin construction by the end of 2021.
Most of those proposed projects have been delayed for years, first due to permitting issues but more recently due to the volatile LNG markets, which have caused some companies to delay making the multibillion-dollar decision to build an export facility. In effect, those developers are deferring their decision until markets firm and prices rise. Moody's Investors Service, a division of Moody's Corporation (NYSE:MCO) (New York, New York), is the latest observer to cast doubt on the near-term prospects for LNG project development in the U.S. But the credit-rating firm also threw some cold water on the long-term prospect for domestic LNG development.
In an October 15 report, "LNG Competition Intensifies Amid Reduced Demand Expectations," Moody's said. "The pandemic-related downturn has trimmed expectations of growth in fundamental long-term demand for LNG in the next five years and has increased investment risks on future capacity expansion projects designed to meet LNG demand beyond 2025."
The agency continued, "The U.S. is still within reach of becoming the world's largest LNG exporter by the mid-2020s. But virtually all of these new U.S. projects are still awaiting contract backing before beginning construction, and today's oversupplied global LNG markets will likely delay much of this proposed capacity until at least well into the decade."
Moody's observed that 14 U.S. LNG projects have secured federal permits but have not advanced to construction.
"The U.S. has a number of 'zombie' LNG export terminal projects out there--on paper, they're still alive, but in reality, they are no longer viable projects," commented Jesus Davis, IIR's North American research specialist for the Oil & Gas Production, Pipelines and Terminals industries. "They got overtaken by market events. Many got started too late, after the first wave of project development. In a best-case scenario, a few of these projects will get a final investment decision in the next year or two and will be operating by the late-2020s. But most won't."
Four of these proposed terminals -- the Jordan Cove project in Oregon, the Gulf LNG Liquefaction project in Mississippi, the Alaska LNG Liquefaction Plant in Alaska and the Calcasieu Pass LNG Production Terminal in Louisiana -- are on the list of projects that the Department of the Interior (DOI) (Washington, D.C.) is trying to expedite. For more on that, see September 8, 2020, article - U.S. Interior Department Seeks to Expedite Energy, Mining Projects.
Earlier this month, Davis spoke on an LNG webcast sponsored by Industrial Info Resources. According to Industrial Info's global market intelligence platform, 51.75 million tons per annum (MTPA) of LNG export capacity were added in the U.S. between 2018 and 2020, which escalated the U.S. into the world's No. 3 LNG exporter. Right now, there is about 331 million tons of export capacity being developed in the U.S., most of which will not come online. North America has about 20 million MTPA of LNG export capacity under construction. For more on that, see October 8, 2020, article - LNG Webinar: Short Term Hurting, but Long-Term Demand Growth Remains in Place.
Davis and his colleague, Shane Mulins, Industrial Info's Vice President of Product Development, saw a better long-term outlook for U.S. LNG exports compared to Moody's. On IIR's October 7 webcast, Mullins said: "The long-term demand fundamentals are still in place. Global demand for LNG is still expected to be 550 to 600 metric tons per annum by 2035, and to produce that, we're going to need to have 650-700 MTPA of nameplate capacity in place. Today though, there's 430 MTPA that's already operational ... Despite the challenges facing LNG developers this year, we do see [financial investment decision] approvals likely in the shorter term."
Getting a permit issued faster is only one part of the challenge facing LNG developers. The other, and gut-wrenching, decision is making a financial commitment to build a multibillion-dollar facility in the face of weak pricing and significant new capacity coming online in other countries. Strong future demand, as laid out in the long-term energy scenarios crafted by BP Plc (NYSE:BP) (London, United Kingdom) is encouraging, but the LNG world has changed significantly from 2014, when LNG prices fetched as much as $15 per million British thermal units (MMBtus) in Asian markets. Over the last 12 months, U.S. LNG prices have averaged about $5 per MMBtu, though some shipments have been significantly less than that.
For more on BP's outlook for rising global LNG demand, see September 22, 2020, article - Natural Gas and LNG Fare Better than Coal or Oil in Three BP Scenarios.
U.S. LNG exports have fallen in recent months, as the COVID-19 pandemic has cut into global demand. While the U.S. has about 8 billion cubic feet per day (Bcf/d) of LNG export capacity, actual shipments have slumped from approximately 8 Bcf/d in early 2020 to less than 4 Bcf/d as of the late summer, according to DoE. Next year, U.S. export capacity is slated to reach about 10 Bcf/d, the agency said.
Australia and Qatar are two of several countries that are expanding their LNG export capacity, leading to more competition for contracts. Although U.S. natural gas costs are low and projected to stay that way for a while, low-cost feedstock gas might not be enough to offset the hefty travel requirements to get an LNG vessel to Asian markets.
"Developers who made their multibillion-dollar commitments four, five or six years ago are capturing U.S. export volumes today, though everyone has taken a hit with COVID-19," Davis said. "Going forward, we expect the world will need added LNG export capacity. As it was in the past, it will be in the future: the early bird will get the LNG worm."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
