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.
As we’ve discussed extensively in the LNG Voyager report and recent blogs, 2021 is shaping up to be a stellar year for U.S. LNG. Prolonged high global gas prices and strong margins for U.S. cargoes are creating stable demand for the existing terminals, allowing them to operate at fully contracted capacity whenever operationally possible. Some U.S. facilities are potentially even producing additional cargoes for the spot market. As a result, outside of short-term maintenance periods, domestic feedgas demand is expected to remain relatively steady at around 11 Bcf/d — the amount needed for full utilization at the terminals — and is poised to head even higher later this year as Calcasieu Pass and Sabine Pass Train 6 come online (see Such Great Heights Pt. 2 for more on the commissioning and timing of those projects).
The fundamentals remain incredibly bullish. High prices are likely to persist into at least this winter. Apart from being great for existing U.S. terminals, the wild swing of the market from the uncertainty and sense of doom last summer to sustained high prices now has shown that perhaps the global market was not as oversupplied as previously thought. This is the longest and strongest bull run the global gas market has seen since 2018, and at that point, only 25.25 MMtpa of LNG export capacity was online in the U.S., compared with 75 MMtpa now. The past year has shown how quickly the market can swing from being oversupplied to being undersupplied, and that is bringing renewed interest in offtake agreements.
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