LNG project development

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.

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.

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.