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Released May 27, 2020 | SUGAR LAND
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Researched by Industrial Info Resources (Sugar Land, Texas)--Stuck between the COVID-19 pandemic and an already oversupplied market, many liquefied natural gas (LNG) production projects across the globe are being put on hold, delayed or cancelled.
As of mid-May, Industrial Info was tracking more than $150 billion worth of LNG production projects that have been affected by COVID-19-related issues. This includes $50 billion in North American projects.
Click on the image at right showing the top 10 countries where LNG project activity has been affected by COVID-19.
U.S. exporters have seen a number of cancellations for purchased LNG destined for export, as companies in Europe and Asia are experiencing falling demand due to COVID-19. For more information, see April 27, 2020, Market Brief -- LNG Cargo Deliveries Cancelled Across the Globe.
In its April Short Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) forecast that U.S. LNG would average 6.6 billion cubic feet per day (Bcf/d) in the second quarter of 2020 and 6.0 Bcf/d in the third quarter. LNG exports in the third quarter were 0.3 Bcf/d lower compared with the March STEO because of lower expected global demand for natural gas.
The fall in crude oil prices has caused oil-linked LNG cargoes to narrow the gap between spot LNG prices and long-term LNG contracts already in place, prompting some buyers to review their long-term supply contracts in light of lower spot prices. In turn, this has caused additional uncertainty for some U.S. LNG developers, who are mulling delaying their projects until the drop in demand due to COVID-19 goes away.
Cheniere Energy Incorporated's (NYSE:LNG) (Houston, Texas) Chief Executive Officer Jack Fusco said during the company's April 30 earnings conference call that the global LNG market continued to grow during the first quarter, with output at a record level of almost 100 million tons. About 10 million tons of new LNG supply were added in the first quarter, with about 70% coming from the U.S.
"This came on the heels of the approximately 40 million tons of new LNG supply in 2019," Fusco said. "The continued supply surge entered an already amply supplied global market, which is now also trying to cope with the pandemic."
"The record oversupply has created an environment where spot cargoes are cheap and plentiful, giving importers options that were not consistently available before. Until the supply glut works itself out and there is significant growth in demand, it is not very likely that the U.S. will see any new financial investment decisions (FIDs) on liquefaction projects in 2020," he continued.
"We have already seen announcements of FID delays and cancellations from projects totaling over 100 million tons per annum of capacity," Fusco said. "In early 2019, we expected projects totaling approximately 100 million tons per annum of capacity to have a reasonable chance of FID in 2020 and another 30 million tons of capacity in 2021. After the demand and supply shocks, which gained during the first quarter, we anticipate that FIDs in 2020 will be much lower, totaling under 15 million tons per annum of capacity, with some projects shifting to a 2021 FID and others delayed even further," Fusco continued. We now expect FIDs for the two-year period to total approximately 65 million tons or about half of our previous forecast."
Cheniere has delayed its FID for the 4.5 million-metric-ton-per-year Train 4 unit at its Corpus Christi operations in Texas. For more information, see Industrial Info's project report.
Current market conditions and COVID-19 will not affect the construction timetables for Cheniere's 4.5 million-metric-ton-per-year Corpus Christi Train 3 and 4.5 million-metric-ton-per-year Sabine Pass Train 6 in Cameron, Louisiana, Fusco said. Construction of Corpus Christi Train 3 was about 84% complete, and Sabine Pass Train 6 was about 54% project complete, he said. For more information, see Industrial Info's project reports for Corpus Christi Train 3 and Sabine Pass Train 6.
A delay is also the case with Sempra Energy's (NYSE:SRE) (San Diego, California) $3.5 billion Port Arthur LNG project, where the company has pushed back a final investment decision to 2021.
"I think the ability to go out and project finance Port Arthur in the current market is somewhat limited," said Sempra LNG Chief Executive Officer Justin Bird during the company's May 4 earnings conference call. "I think in the short term, we see some uncertainty and unpredictability given what we're seeing in the oil prices. And the third thing I'd say is that we, at Sempra, in partnership with Bechtel (Corporation (Reston, Virginia), the project's engineering, procurement and construction provider), see some opportunities to potentially decrease the cost of the construction, given that we're seeing a global slowdown on large capital projects. So, we think frankly this project can be stronger, although delayed. We think it will be bring a better return to our investors and frankly be a better project for our customers."
For more information on the 7.7 million-metric-ton-per-year unit, see Industrial Info's project report.
In April, Sempra announced the third train of its Cameron LNG liquefaction-export project in Hackberry, Louisiana, had entered the final commissioning phase. Commercial operation of Train 3 remains on track to begin in the third quarter of 2020, according to the company. Sempra will be able to export about 12 million metric tons per year of LNG from Cameron LNG.
In addition, the likelihood 2020 FIDs for Freeport LNG's Train IV in Quintana, Texas, Tellurian Incorporated's (NASDAQ:TELL) (Houston) Driftwood LNG project in Lake Charles, Louisiana, and the Magnolia LNG Project, also in Lake Charles, are in jeopardy due to current market conditions. Liquefied Natural Gas Limited (Sydney, Australia) was selling the Magnolia LNG Project to Global Energy Megatrend Limited (London, England) for $2.25 million. For more information, see Industrial Info's project reports on Freeport LNG's Train IV Tellurian's Driftwood and the Magnolia projects.
Freeport LNG's 5.1 million-metric-ton-per-year Train 3 has achieved commercial operations, it was announced earlier this month. Toshiba Corporation and SK E&S have contracted to buy the LNG from Train 3.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
As of mid-May, Industrial Info was tracking more than $150 billion worth of LNG production projects that have been affected by COVID-19-related issues. This includes $50 billion in North American projects.
U.S. exporters have seen a number of cancellations for purchased LNG destined for export, as companies in Europe and Asia are experiencing falling demand due to COVID-19. For more information, see April 27, 2020, Market Brief -- LNG Cargo Deliveries Cancelled Across the Globe.
In its April Short Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) forecast that U.S. LNG would average 6.6 billion cubic feet per day (Bcf/d) in the second quarter of 2020 and 6.0 Bcf/d in the third quarter. LNG exports in the third quarter were 0.3 Bcf/d lower compared with the March STEO because of lower expected global demand for natural gas.
The fall in crude oil prices has caused oil-linked LNG cargoes to narrow the gap between spot LNG prices and long-term LNG contracts already in place, prompting some buyers to review their long-term supply contracts in light of lower spot prices. In turn, this has caused additional uncertainty for some U.S. LNG developers, who are mulling delaying their projects until the drop in demand due to COVID-19 goes away.
Cheniere Energy Incorporated's (NYSE:LNG) (Houston, Texas) Chief Executive Officer Jack Fusco said during the company's April 30 earnings conference call that the global LNG market continued to grow during the first quarter, with output at a record level of almost 100 million tons. About 10 million tons of new LNG supply were added in the first quarter, with about 70% coming from the U.S.
"This came on the heels of the approximately 40 million tons of new LNG supply in 2019," Fusco said. "The continued supply surge entered an already amply supplied global market, which is now also trying to cope with the pandemic."
"The record oversupply has created an environment where spot cargoes are cheap and plentiful, giving importers options that were not consistently available before. Until the supply glut works itself out and there is significant growth in demand, it is not very likely that the U.S. will see any new financial investment decisions (FIDs) on liquefaction projects in 2020," he continued.
"We have already seen announcements of FID delays and cancellations from projects totaling over 100 million tons per annum of capacity," Fusco said. "In early 2019, we expected projects totaling approximately 100 million tons per annum of capacity to have a reasonable chance of FID in 2020 and another 30 million tons of capacity in 2021. After the demand and supply shocks, which gained during the first quarter, we anticipate that FIDs in 2020 will be much lower, totaling under 15 million tons per annum of capacity, with some projects shifting to a 2021 FID and others delayed even further," Fusco continued. We now expect FIDs for the two-year period to total approximately 65 million tons or about half of our previous forecast."
Cheniere has delayed its FID for the 4.5 million-metric-ton-per-year Train 4 unit at its Corpus Christi operations in Texas. For more information, see Industrial Info's project report.
Current market conditions and COVID-19 will not affect the construction timetables for Cheniere's 4.5 million-metric-ton-per-year Corpus Christi Train 3 and 4.5 million-metric-ton-per-year Sabine Pass Train 6 in Cameron, Louisiana, Fusco said. Construction of Corpus Christi Train 3 was about 84% complete, and Sabine Pass Train 6 was about 54% project complete, he said. For more information, see Industrial Info's project reports for Corpus Christi Train 3 and Sabine Pass Train 6.
A delay is also the case with Sempra Energy's (NYSE:SRE) (San Diego, California) $3.5 billion Port Arthur LNG project, where the company has pushed back a final investment decision to 2021.
"I think the ability to go out and project finance Port Arthur in the current market is somewhat limited," said Sempra LNG Chief Executive Officer Justin Bird during the company's May 4 earnings conference call. "I think in the short term, we see some uncertainty and unpredictability given what we're seeing in the oil prices. And the third thing I'd say is that we, at Sempra, in partnership with Bechtel (Corporation (Reston, Virginia), the project's engineering, procurement and construction provider), see some opportunities to potentially decrease the cost of the construction, given that we're seeing a global slowdown on large capital projects. So, we think frankly this project can be stronger, although delayed. We think it will be bring a better return to our investors and frankly be a better project for our customers."
For more information on the 7.7 million-metric-ton-per-year unit, see Industrial Info's project report.
In April, Sempra announced the third train of its Cameron LNG liquefaction-export project in Hackberry, Louisiana, had entered the final commissioning phase. Commercial operation of Train 3 remains on track to begin in the third quarter of 2020, according to the company. Sempra will be able to export about 12 million metric tons per year of LNG from Cameron LNG.
In addition, the likelihood 2020 FIDs for Freeport LNG's Train IV in Quintana, Texas, Tellurian Incorporated's (NASDAQ:TELL) (Houston) Driftwood LNG project in Lake Charles, Louisiana, and the Magnolia LNG Project, also in Lake Charles, are in jeopardy due to current market conditions. Liquefied Natural Gas Limited (Sydney, Australia) was selling the Magnolia LNG Project to Global Energy Megatrend Limited (London, England) for $2.25 million. For more information, see Industrial Info's project reports on Freeport LNG's Train IV Tellurian's Driftwood and the Magnolia projects.
Freeport LNG's 5.1 million-metric-ton-per-year Train 3 has achieved commercial operations, it was announced earlier this month. Toshiba Corporation and SK E&S have contracted to buy the LNG from Train 3.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
