North American LNG sector continues to struggle against weak economic outlook and COVID-19 outbreak

Source: press release, 8 June 2020

North American LNG projects, capex outlook to 2025 (source: GlobalData’s Oil & Gas Intelligence Center)
North American LNG projects, capex outlook to 2025 (source: GlobalData’s Oil & Gas Intelligence Center)

Reduced demand due to economic slowdown, coupled with the COVID-19 outbreak, has led to cancellations of long-term liquefied natural gas (LNG) supply contracts and cargo deferments by importing counties. This has led to low utilisation of liquefaction capacity, primarily in the US – one of the key suppliers of the super-chilled gas globally. Furthermore, the fall in gas prices deepens the crisis for LNG suppliers and upstream gas producing companies in the region, says GlobalData, a data and analytics company.

Haseeb Ahmed, Oil and Gas analyst at GlobalData, comments, “Due to a sharp fall in in oil prices, spreads between oil-indexed long-term LNG contracts and spot contracts have reduced considerably. As a result, LNG producers might struggle to leverage higher value long-term contracts for weaker spot-prices that can keep their revenues up. As uncertainty still looms large, several companies in North America may rethink their spends on upcoming multibillion-dollar gas projects and delay final investment decisions (FIDs).”

Failing to secure a long-term buyer commitment for its Driftwood project due to the current crisis, Tellurian Investments is likely to delay its FID by nearly 2 years. This is likely to push the project timeline, which was initially expected to go online in 2023, by 2 years. Similar is the case with Pieridae Energy, which is delaying its FID on the Goldboro project from Q3 2020 to Q2 2021 – likely to push the start of the project by a year to 2025.

In view of current market conditions and COVID-19 pandemic, Royal Dutch Shell has pulled out of the Lake Charles project, owned and operated by Energy Transfer. In the absence of a potential investor to replace Shell, the FID of the project may get delayed and the project start year is likely to be pushed back by around 2 years to 2027.

Ahmed concludes, “While the short-term impact of the current crisis on North American LNG sector may result in limiting LNG production or uncertainty over new investments, the long-term impact can be supply overhang that can make it difficult for North American producers to remain cost competitive.”