Progress for the second wave of U.S. LNG export projects, which already had begun slowing in the latter half of 2019, has come to a near standstill this year, with several developers delaying final investment decisions (FIDs). The economics for U.S. LNG exports have evaporated in recent weeks, and for the first time in the four years or so since the Lower 48 began exporting LNG, cargo cancellations have become a regular part of the U.S. gas market’s vernacular. International prices are signaling that oversupply conditions will linger for a while, likely well after COVID’s impacts on demand ease. Nevertheless, projects that are already under construction are pushing forward, including the last of the first-wave expansions and two facilities from the second wave of proposed projects. There’s also one more second-wave development that could take FID this year. Today, we provide highlights from RBN’s latest LNG Voyager Quarterly report.
It wasn’t long ago that rampant growth in U.S. LNG exports this decade was practically a foregone conclusion. With the first wave of U.S. liquefaction capacity additions either operational or well on their way there, the last couple of years brought a cascade of announcements for still more U.S. LNG export capacity — the so-called second wave. This included nearly two dozen projects totaling 235 MMtpa (~35 Bcf/d) of liquefaction capacity, primarily along the Gulf Coast. Not all of those were expected to make it across the finish line, of course, but all indications were that several would materialize in this decade and most of those by mid-decade even. At this time last year, industry warnings of a global LNG oversupply in the mid-term were beginning to rise, but a frenzy of regulatory approvals and commercial activity suggested a slew of FIDs were imminent and that 2019 would be a watershed year for many of these second-wave projects. It’s safe to say that fervor (and the capital behind it) is dead. It began to fizzle out in the latter half of 2019 as a global gas supply glut worsened — largely a result of project completions and growing exports from the U.S. and Australia, though other factors like the U.S.-China trade war and high European storage levels exacerbated it as well. And any remaining optimism has since been squashed by the COVID crisis, which crushed global demand after lockdowns began in February 2020, and the oil price collapse, which has made oil-indexed LNG prices overseas much more competitive against U.S. LNG, almost all of which is priced off the Henry Hub gas benchmark price.
As we discussed last week in the Break It To Me Gently blog, international price spreads have collapsed in the wake of these events, and cancellations of U.S. LNG cargoes are mounting. And as our round-up last month of second-wave projects in Holding On For Life suggested, support for these projects has buckled. While several have made progress on the regulatory front in recent months, most, if not all, have been battling strong — and worsening — commercial headwinds for developing these massive, capital-intensive facilities. Several have announced delays or deferrals for taking FID since the beginning of the year.
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