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

Global gas prices are in the midst of the longest and strongest bull run since 2018 and fundamentals appear supportive of sustaining the rally through at least the upcoming winter. The higher international prices relative to Henry Hub have buoyed demand for U.S. LNG exports. Existing terminals are operating at or near full capacity, and their combined feedgas demand has been steady, averaging more than 6 Bcf/d higher than this time last year when economic cargo cancellations from COVID-19 were heading towards their summer peak. The improved economics for delivering U.S. LNG to international destinations have also renewed interest in offtake agreements for a handful of the second wave of North American LNG projects that had been sidelined because of the pandemic (many others still are). These projects are taking advantage of the less crowded market, which gives them a realistic path forward to reach a final investment decision (FID). In today’s blog, we continue the series on the status of the second wave of LNG projects.

We began this LNG project update in Part 1 with a recap of the proposed facilities that have fallen by the wayside in the past year or so. Either they were officially placed on the back burner by their developers, lost funding (Kitimat LNG in Western Canada), were put on hold (Jordan Cove LNG), or in the case of Annova LNG, was even cancelled completely due to COVID and the ensuing economic meltdown. As we noted in the previous blog, still others have simply gone quiet and are by all indications out of the running, albeit unofficially, for achieving FIDs.

That whittling down of competing projects has left just a handful with improved prospects for securing offtaker commitments and reaching FID in the next few years. In our LNG Voyager Quarterly supplement, we monitor the latest news and progress of 25 pre-FID projects (in addition to the operations, construction and commissioning status of the 10 LNG facilities that have already taken FID). We group them into the following categories: operational, under construction, pre-FID but “probable” for reaching FID in the next year, and “possible” but not likely to be greenlighted in the next year. Within the “possible” bucket, we further group them into Tier 1, Tier 2, and Tier 3, based on the likelihood that they will achieve FID in the next 1-3 years. The map in Figure 1 highlights the projects we currently designate as “probable” (dark orange), Tier 1 (light orange), Tier 2 (yellow).

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