Only the Strong Survive, Part 2 - How COVID-19 Reshaped the Future of North American LNG Projects

Appetite for new North American LNG export capacity had been waning already when COVID-19 brought it to a screeching halt. The global gas market was expected to be well-oversupplied through the mid-2020s as U.S. liquefaction capacity additions, combined with supply growth from Australian LNG projects, were far outpacing any increase in demand. However, the past year or so has proven how quickly things can swing from oversupplied to undersupplied. The extended run of high global gas prices is bringing renewed interest in expanding North American LNG export capacity. Although COVID dashed the prospects of many LNG projects, a handful have emerged from the morass of the past year stronger and with a clearer path to FID than ever before. Those that remain will be better positioned if they can navigate four emerging trends that are key for offtaker agreements in the post-COVID era: shorter contract terms, increased pricing or deal-structure diversity, reduced environmental impact, and a prioritization of brownfield expansions or phased greenfield projects. Today, we conclude the series on the status of the second wave of LNG projects.

Over the past year, we have witnessed a sort of slow-motion meltdown among the second wave of North American LNG export projects. Appetite for new LNG expansions was already waning due to oversupply even before the pandemic affected demand, but COVID-19 brought project developments to a standstill. Offtake agreements have expired, final investment decisions (FIDs) delayed, and projects have lost funding or been officially put on hold or even cancelled. Just one project, Sempra’s ECA LNG in Mexico, was able to reach an FID last year, and with the pandemic still raging, for a while it looked as if that would be the last project in North America to take FID in the foreseeable future. It’s abundantly clear that many more of the remaining proposed projects will be postponed indefinitely, and probably never be built at all. However, the news isn’t all bad. With the worst of COVID-19’s impacts on international gas demand appearing to be over and the ongoing extended run of high global gas prices, all eyes are back on the second-wave projects that are in various stages of pre-FID development. The pandemic may have forced a culling of the proposed projects, but those near the top now have a clearer path ahead. In fact, several projects could realistically achieve FID in the next few years. Today, we begin a short series providing an update on the second-wave projects.

U.S. LNG is in the midst of a record-breaking year. Total LNG feedgas has averaged nearly 10 Bcf/d so far in 2021 and the country is on track to export somewhere around 1,000 cargoes this year, 40% more than last year. Although pipeline maintenance and flow constraints have knocked feedgas off the all-time highs seen earlier this year, feedgas and exports are likely to hit new record levels to close out the year as Sabine Pass Train 6 and Calcasieu Pass prepare to start service in early 2022. The strength in U.S. LNG export demand this year is underpinned by an incredibly bullish global gas market, which has led prices in both Europe and Asia to hit all-time highs. This has not only benefited the existing fleet of terminals, but the prolonged bullish global gas market has accelerated commercial activity for future LNG projects. Since May, more than 12 MMtpa of capacity from LNG terminals or liquefaction trains under development has been sold, pushing several prospective LNG projects closer to a final investment decision (FID). RBN covers all of the latest in our LNG Voyager Quarterly report, but in today’s blog, we take a look at some of the highlights from the report, focusing on the biggest changes in LNG development this summer.