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Energy

For LNG developers, another year of canceled projects

5 minute read

Cranes work in the water at the Kitimat LNG site near Kitimat, in northwestern British Columbia on April 13, 2014. REUTERS/Julie Gordon/File Photo

This week's decision by Australia's Woodside Petroleum Ltd (WPL.AX) to pull out of a big Canadian liquefied natural gas (LNG) project was the latest blow to a sector that has been heralded for its growth prospects worldwide.

Demand for super-cooled LNG has surged in recent years as large energy-consuming nations like China and India wean themselves off dirtier coal. Demand is expected to keep hitting fresh highs, but three North American projects have stopped development in the past few months, as customers remain hesitant to sign long-term purchase agreements needed for financing.

LNG terminals, where gas is cooled into a liquid for shipping via tanker, take roughly four years to build. Investors in new projects are wary of oversupply in coming years after Qatar Petroleum, the world's biggest and lowest-cost LNG producer, announced big expansion plans in February.

To be sure, there are still a dozen North American projects in the works that could decide to kick off construction later this year. But that's no different from 2020 and 2019, when numerous projects were delayed or killed. Only one project started construction in 2020.

Global demand rose 0.4% in 2020 to a record 356 million tonnes per annum (MTPA) of LNG or 47 billion cubic feet per day of natural gas, according to the International Group of Liquefied Natural Gas Importers (GIIGNL). One billion cubic feet of gas can supply about 5 million U.S. homes for a day.

Woodside has a 50% interest in the Kitimat project in British Columbia, which it said it would sell on Monday. That followed two other projects put on hold this year: Annova's Brownsville in Texas in March and Pembina Pipeline Corp's (PPL.TO) Jordan Cove in Oregon in April. read more

Sempra Energy (SRE.N), meanwhile, said it would likely push back a decision to start building its proposed Port Arthur terminal in Texas from 2021 to 2022. read more

"With the Qataris adding more capacity at a very cheap cost, it does not make financial sense for U.S. companies to be building greenfield projects," said Matt Smith, director of commodity research at ClipperData, a provider of commodities data and analytics. He said it makes more sense to expand sites with existing terminals.

Qatar Petroleum said in February it will boost output from 77 MTPA now to 110 MTPA by 2026 and possibly 126 MTPA by 2027. read more

"Given the Qataris decision to move forward ... the global LNG markets appear poised for another period of oversupply" that may be dissuading buyers, said Ross Wyeno, lead analyst of Americas LNG Analytics at S&P Global Platts.

Customers have been reluctant to sign long-term purchase agreements after global gas , prices fell to their lowest in years during a supply glut in 2019 when a record number of LNG projects entered service. Last year, prices dropped even further, hitting record lows due to coronavirus demand destruction.

Several LNG developers, however, said they remain on track to make decisions to start construction this year.

Pieridae Energy Ltd's (PEA.TO) CEO Alfred Sorensen said last week that the company's proposed Goldboro project in Nova Scotia was "beginning to look like ‘the last one standing.'" It plans to make its final investment decision by the end of June.

Tellurian Inc's (TELL.O) Executive Chairman Charif Souki said last week his company was weeks away from finishing commercialization for the first phase of its proposed Driftwood project in Louisiana.

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