The crude oil price has made a spectacular comeback in just over a year from being down 80 percent to $13.34 per barrel to now being at more than $70 a barrel, taking oil-linked LNG into more comfortable territory for what remains the pricing basis for the majority of LNG shipments delivered worldwide.
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During the past 18 months oil-linked LNG contracts have increased in value for the sellers from around $3.75 per million British thermal units to $9.55 per MMBtu on June 15.
The oil markets witnessed a turbulent first half of the year as end-user demand was decimated by the pandemic and markets slumped because of a global oversupply.
Driven by supply cuts by the Organization of Petroleum Export Countries and 10 other key exporting markets, including Russia, as well as optimism about a sustained recovery in demand as the world gets vaccinated, the oil benchmark has surged over the past month after gradual recovery.
“The majority of LNG contracts globally remained linked to Brent crude oil prices, with long-term LNG contracts signed earlier in 2020 close to a 11 percent slope to the Dated Brent, tracking the fall in LNG spot prices in the first half of the year,” said the International Gas Union in an overview of LNG supplies picture now and in the future.
“Assuming an average slope of 13 percent for older contracts and 11 percent for newer ones, Brent-linked LNG contracts for delivery over the full year of 2020 were priced at $5.82 per MMBtu and $4.93 per MMBtu,” said the IGU.
Its report noted that this compared with the full-year average of $3.94 per MMBtu for the Japan-Korea Marker for LNG cargo contracts signed at parity to the LNG spot benchmark.
“Brent-linked contracts had a higher average delivery price than JKM-linked contracts in the first three quarters of 2020, but the JKM price rally meant that contracts for delivery in the winter months of November and December carried much higher average prices,” said the IGU.
As of the first quarter of 2021, there were 21 markets with operational LNG export facilities.
Australia led with 87.6 MTPA of operational liquefaction capacity, followed by Qatar with 77.1 MTPA. The US was in third place with 69.1 MTPA, growing its liquefaction capacity by a 20.0 MTPA in 2020.
The top three LNG exporting markets currently represent more than half of the global liquefaction capacity.
Investments
“As of February 2021, 137.3 MTPA of liquefaction capacity was under construction or sanctioned for development,” said the IGU while noting that 25.6 percent of this capacity was in North America.
However, Qatar Petroleum leads the way with the final investment decision for the development on the North Field East (NFE) project, adding 32 MTPA to global sanctioned liquefaction capacity.
According to IGU data, out of the 892.4 MTPA of aspirational liquefaction capacity in the pre-Final Investment Decision stage around the world, the US accounts for 39.4 percent (351.6 MTPA), followed by Canada at 25.5 percent (227.8 MTPA) and Australia at 5.6 percent (50.0 MTPA). Russia follows closely behind with 44.0 MTPA.
“While most operational US LNG projects are brownfield conversion projects, the currently proposed US LNG projects are mainly greenfield projects that consist of multiple small- to mid-scale LNG trains delivered in a phased manner,” explained the IGU.
“This provides flexibility in securing long-term off-takers and increases competitiveness in project economics through modular construction,” added the report.
It cited the example of US company Venture Global’s Calcasieu Pass and Plaquemines LNG (21.6 MTPA) in Louisiana, which plan to accommodate up to 36 liquefaction Trains of 0.6 MTPA each, configured in 18 blocks.
“Another example is Driftwood LNG (27.6 MTPA), also in Louisiana, which consists of 20 liquefaction Trains built in four phases. The facility will process feed-gas from the existing interstate pipeline system of the Columbia Gulf Transmission, which interconnects about 14 interstate Pipelines,” explained the IGU.
Out of the 227.8 MTPA of liquefaction capacity proposed in Canada, 179.3 MTPA sits along the Pacific west coast of British Columbia, which is closer to Asian markets than rival projects on the US Gulf Coast.
This means that shipping costs from the West Coast of Canada to Asia are lower than from the US Gulf Coast.
“This is a key driver for the increase in the number of proposed LNG export projects on the Canadian west coast, although most remain in early development stages,” stated the IGU.
