US shale boom causing slowdown in LNG industry
November 25, 2013 Leave a comment
November 24, 2013 4:56 pm
US shale boom causing slowdown in LNG industry
By Guy Chazan and Ajay Makan
Asian buyers’ reluctance to sign the long-term contracts that have traditionally underpinned big liquefied natural gas projects is causing a sharp slowdown in the LNG industry worldwide. A key reason for the standstill is the North American shale gas boom, which promises a cheaper alternative to existing supplies. Amid the uncertainty, LNG developments from east Africa to Canada are being held up, raising fears of a future shortage that could push up global gas prices.Philippe Sauquet, director of gas and power at Total, says buyers and sellers cannot agree on price.
“A lot of projects today are still on the shelf because they have not succeeded in interesting long-term buyers,” he told the Financial Times. “Clearly there is a risk [they] won’t get built.”
Asian buyers are showing a keen interest in potential exports of US shale gas, because it is indexed to Henry Hub, the US benchmark, which trades at a hefty discount to LNG sold in Asia.
“The Japanese government is saying LNG prices are too high and wants to see them come down,” says Gavin Thompson, head of Asia-Pacific gas research at consultancy Wood Mackenzie. Tokyo is also seeking to increase co-ordination on LNG procurement between buyers, as well as promoting greater competition between new LNG suppliers to bear down on prices.
Global demand for LNG has doubled since 2000 and is predicted to double again by 2025, as big new consuming nations such as China ramp up their imports of the clean-burning fuel.
But the number of LNG projects that are reaching final investment decision, or FID, is slowing to a trickle. Research by Wood Mackenzie shows that only 9m tonnes per annum of LNG capacity reached FID this year – all of it in the US. That compares with 14.1mtpa worldwide in 2012 and 26.8mtpa in 2011.
Because LNG projects are so costly, they normally only proceed to FID once the developers have sold most of their supply in long-term contracts indexed to the price of crude oil – so the buyers’ reluctance to sign up is creating a snarl-up throughout the industry.
Meanwhile, many of the proposed new LNG projects face steep technical and commercial challenges
One casualty is Mozambique, where vast amounts of natural gas have been discovered in recent years and which was expected to become a major LNG exporter this decade.
“It wasn’t long ago that people were talking about a proposed 2018 start-up for east African LNG,” says Mr Thompson. “But that timing is slipping.”
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