March 30, 2020 / 3:00 PM / 2 months ago

Shell drops out of major U.S. LNG project, Energy Transfer delays decision

(Reuters) - Royal Dutch Shell Plc pulled out of a major U.S. liquefied natural gas (LNG) export plant under development following the recent crash in energy prices, quickly followed by its partner, Energy Transfer LP, delaying its final decision on whether to go ahead with the project to next year.

FILE PHOTO: The logo of Royal Dutch Shell is seen at a petrol station in Sint-Pieters-Leeuw, Belgium January 30, 2019. REUTERS/Yves Herman/File Photo

The Lake Charles, Louisiana, facility is one of several LNG export projects worldwide that have been delayed in recent months by the collapse in global energy prices. Global LNG demand has been hitting record highs for years, thanks to big demand from Asian nations like China and India as they diversify away from dirtier coal power generation.

The crash in oil and gas prices has caused major LNG exporters like Qatar and oil giant Exxon Mobil Corp, however, to put off gigantic new facilities or expansions of existing projects. U.S. gas prices have recently dropped to their lowest since 1995.

“It’s telling that (Shell) a major would walk away from a major outlet for long-term gas supply,” said Ira Joseph, head of global gas and power analytics at S&P Global Platts, noting that storage, port and pipeline work was already in place on the project.

Analysts have anticipated that a number of the projects under development worldwide would not come to fruition. In total, U.S. energy firms alone are developing over 50 billion cubic feet per day (bcfd) of new export capacity - more than all the worldwide consumption of LNG in 2019, which was about 46.3 bcfd, according to Refinitiv Eikon data.

“Given the added demand decreases associated with COVID-19 and continuation of price declines it’s even more likely that we’ll see additional projects aiming to reach FID (final investment decision) this year delay their timelines for hitting this milestone,” said Allison Hurley, team lead, LNG and proprietary natural gas at energy researcher Genscape.

The Lake Charles project, one of a number of large LNG facilities planned in the wake of the U.S. shale boom, envisaged converting Energy Transfer’s existing import and regasification facility into a 2.2-bcfd export facility.

“Whilst we continue to believe in the long-term viability and advantages of the project, the time is not right for Shell to invest,” Maarten Wetselaar, head of Shell’s integrated gas and new energies division, said in a statement.

Energy Transfer said it expected to make a final investment decision by early 2021 on whether to build the plant, a delay from its earlier timeline for a decision by late 2020. The company’s shares fell by 5% on Monday, while Shell rose 4%.

Shell said last week that it would cut spending by $5 billion to below $20 billion in 2020 and suspended its vast $25 billion share buyback plan in an effort to weather the oil price collapse.

Exxon Mobil is likely to delay the greenlighting of its $30 billion LNG project in Mozambique, six sources told Reuters in March.

Qatar has also delayed choosing Western partners for the world’s largest LNG project by several months, four sources said in February.

Reporting by Scott DiSavino in New York and Shradha Singh in Bengaluru; Editing by Lisa Shumaker, Marguerita Choy and Peter Cooney

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