Low Prices Have Global LNG Market ‘Imploding Before Our Eyes’

The Institute for Energy Economics and Financial Analysis is out with a list of 11 major liquefied natural gas (LNG) projects that have been cancelled or deferred in the last month, an indication that the financial prospects for the industry “seem to be imploding before our eyes”.

The list includes the C$1.8-billion Woodfibre LNG project in British Columbia, where construction has been delayed until the summer of 2021, and the proposed Goldboro LNG project in Nova Scotia, where Pieridae Energy Ltd. recently delayed an investment decision it had been planning for this fall. IEEFA also identifies three projects in Australia, two in Africa, two U.S. projects with linkages to either Canada or Mexico, one solely in the U.S, and one in Qatar.

“In most cases, the companies pinned the delays on the novel coronavirus, while ignoring the fact that LNG prices were already deflating long before the worst impacts of the pandemic were being felt,” writes IEEFA Energy Finance Analyst Clark Williams-Derry. “And what’s notable is the sheer number and scope of the LNG announcements. Companies of all scales—from giant state-owned enterprises, to publicly traded oil and gas supermajors, to smaller and more speculative start-ups—are pulling back from their LNG commitments and re-evaluating their options.”

In recent years, high prices “had spurred a torrent of new LNG projects around the globe,” he adds. “But that optimism sowed the seeds of the fuel’s current troubles, as massive new supplies of LNG, much of it coming from the U.S., flooded global markets even as demand growth remained muted. The resulting oversupply fueled a global price slump: even before COVID-19 decimated global energy demand, LNG prices were already plummeting to a 10-year low.”

Last week, LNG futures prices in Asia stood at US$2.05 per million BTUs (MMBTU), down more than 80% from $12 as recently as 18 months ago.