After a record 70 mill tonnes per annum of new LNG capacity was sanctioned in 2019, at least as much capacity again was lined up for final approval (FID) this year and next.
However, developers, cash-strapped by the collapse in oil and gas prices, have reined in on capital-intensive pre-FID LNG projects.
Woodmac identified three other factors, which will influence LNG demand going forward.
First, the outlook for LNG demand. Woodmac is bullish, anticipating that LNG demand will double over the next 20 years, driven by Asia’s economic growth and increasing penetration – particularly where policy supports gas over coal.
This view isn’t dissimilar to Shell’s in that the LNG market will grow at four times the rate of oil demand in that period. Woodmac’s base case forecasts global LNG demand grows by over 50% from 370 mill tonnes per annum in 2020 to 550 mill tonnes by 2030.
Allowing for projects already under development, there’s a supply gap of 102 mill tonnes to be met by pre-FID projects, which need to be onstream by the end of this decade.
However, the pace and shape of economic recovery is far from clear and so, too, LNG demand growth in the next few years. Longer term, intensifying interest from policy makers and investors in new technologies, including green hydrogen and CCUS, casts doubt on demand growth’s sustainability.
Second, the rising influence of spot LNG prices on project economics. The traditional oil price-linked contracts and firm offtake agreements that have supported the financing of new projects are disappearing. Many projects today rely on equity lifting, with joint venture partners taking the LNG into their own portfolios. The attraction is flexible volumes that can be sold to any buyer and capture the best price.
This also means rising exposure to spot LNG prices. Japan spot LNG prices have ranged from over $11 per MMBtu in 2018 to as low as $2.10 early this year, underlining the volatility and risk in running an open spot gas position.
Third, scrutiny of carbon intensity. ESG has leapt to the top of the agenda for LNG producers and buyers alike. LNG’s track record on emissions isn’t good. Inert gases, including CO2, must be removed before liquefaction and typically are vented into the atmosphere. Liquefaction itself is energy intense, usually fuelled by produced gas.
In future, carbon footprint will be one factor determining how attractive an LNG project is to developers and buyers, and will influence the price it can command.
Among the pre-FID projects which could fill the supply gap include the mega-trains of Qatar’s low unit cost North Field East, which should be sanctioned in the coming months.
This project alone will absorb 32 mill tonnes per year, negating the need for new supply from other sources until the late 2020s and pushing out FIDs for projects elsewhere by two to three years.
In addition, Qatar believes it has another 16 mill tonnes that it could also develop.
A dozen or more projects from Papua New Guinea, Australia, Mozambique, West Africa, Russia and North America, with combined capacity of more than 150 mill tonnes per annum, will also be vying for a share.
Woodmac said that it will be discussing LNG market dynamics, the investment outlook and lifecycle emissions for projects at an Energy Summit (6th to 8th October, 2020).
The Suez Canal Authority (SCA) has amended the terms of toll rebates granted to LNGCs.
LNG project sector funding could be a problem going forward, due to governments and institutions turning their backs on fossil fuels.
FGEN LNG Corp, a wholly-owned subsidiary of First Gen Corp has received a permit from the Philippines Department of Energy to construct, expand, rehabilitate and modify (PCERM) an interim offshore LNG terminal.
It will be located in the the company’s Clean Energy complex in Batangas City.
This permit was issued in response to the application submitted by FGEN LNG to the DOE on 4th March, 2020.
The project consists of construction work necessary to: (i) modify the existing jetty that will enable it to become a multi-purpose jetty; and ii) build an adjunct onshore gas receiving facility.
This represents the initial phase of the FGEN Batangas LNG terminal that was previously declared by the Philippines Energy Investment Co-ordinating Council through the DOE as an ‘Energy Project of National Significance’.
"We are thankful to Secretary Cusi, and to the Downstream Natural Gas Review and Evaluation Committee of the DOE, for the support and guidance that they have provided during the evaluation process, especially given the difficult circumstances created by the COVID-19 pandemic, and for issuing the PCERM," said Jonathan Russell, FGEN’s Executive Vice President and CCO.
Once FGEN LNG's preparations for the construction start up are complete, including the design and implementation of enhanced work and safety protocols and procedures required to minimise the impact of COVID-19 on construction personnel and the local community, this phase of the project may begin by the end of the third quarter or early in the fourth quarter of this year.
In parallel, FGEN LNG is preparing to issue a binding invitation to tender for an FSRU upon the completion of its ongoing non-binding process. Three FSRU providers, BW Gas, GasLog LNG Services, and Hoegh LNG Asia, have expressed interest in providing the FSRU.
The project will allow FGEN LNG to accelerate its ability to introduce LNG to the Philippines as early as 3Q22, to serve the natural gas requirements of existing and future gas-fired power plants of third parties and FGEN LNG affiliates, the company said.
Completion of Kuwait’s Al-Zour LNG import terminal was believed to be running late, with commissioning now expected next year.
Gaz-System, the Port of Gdansk Authority and the Maritime Office in Gdynia, have signed a letter of Intent (LoI) to build an FSRU terminal at Gdansk, Poland.
Petrobras has concluded tests aimed at increasing the capacity of its Rio de Janeiro LNG import terminal by 50%.
LNG terminal operator, Fluxys Belgium’s net profit rose by more than 15% to €36.6 mill, versus €31.4 mill in the first six months of 2019.
The increase came in a market little affected by Covid-19 pandemic impacts, as the Zeebrugge LNG import terminal saw record traffic. There was also keen interest for additional send-out capacity.
Fluxys said its regulated turnover increased 8.5% to €275.8 mill, compared with €253.9 mill in 1H19.
“The increase in regulated turnover and net profit is mainly due to the commissioning of the fifth storage tank for transhipment services in Zeebrugge in late 2019 and is in accordance with the tariff methodology and the associated authorised manageable costs and incentives,” the company explained.
Zeebrugge and a NOVATEK Yamal LNG subsidiary, have a 20-year agreement to operate up to 107 transhipments per year through the Belgian facility, using Arc7s from Sabetta and conventional LNGCs, which lift the cargoes for export.
“Despite the widespread impact of the Covid-19 outbreak, all of Fluxys Belgium's essential services remained operational and the company focused fully on its vital role towards society and its customers,” the company added.
The number of ships berthing at the Zeebrugge LNG terminal doubled, compared with 1H19 with 39 vessels being handled, another 75 arrived for transhipments and two to load LNG.
“March 2020 was the busiest ever month for ship traffic at the terminal, with a total of 30 vessels docking, more than double the previous record in May 2019,” said Fluxys.
During the first half of this year, the terminal sent out around 11% more natural gas into the transmission system than in the same period of 2019.
“LNG-trailer traffic for truck-loading was also up by around 11%, with almost 1,550 LNG trucks being loaded,” it confirmed, adding; “Responding to market signals, the Zeebrugge LNG terminal conducted a non-binding consultation over the summer to gauge demand for additional send-out capacity.”
“This revealed a positive interest in additional capacity from 2024 onwards, and a binding market consultation will therefore be held later in 2020,” Fluxys said.
The LNG success was offset by declines in natural gas transmission volumes.
In addition, Fluxys offers a wide range of arbitrage and trading on the Zeebrugge Trading Point natural gas market. However, the volumes transported in the network were lower than seen in the first half of 2019.
Teekay LNG Partners, together with Teekay Corp and Teekay Tankers Ltd, have joined the United Nations Global Compact, the corporate sustainability initiative.
State-owned Pakistan LNG Limited (PLL) has invited bids to supply around 420,000 cu m of LNG in November.