LNG projects nixes amid lower oil prices - Moody's
Moody's Investors Service said in a new report 'Lower Oil Prices Cause Suppliers of Liquefied Natural Gas to Nix Projects' that LNG suppliers are curtailing their capital budgets, amid low oil prices and a coming glut of new LNG supply from Australia and the US.
Moody's said that low LNG prices will result in the cancellation of the vast majority of the nearly 30 liquefaction projects currently proposed in the US, 18 in western Canada and 4 in eastern Canada.
Mr Mihoko Manabe, SVP of Moody's, said that "The drop in international oil prices relative to US natural gas prices has wiped out the price advantage US LNG projects, reversing the wide differentials of the past 4 years that led Asian buyers to demand more Henry Hub-linked contracts for their LNG portfolios."
However, projects already under construction will continue as planned, which will lead to excess liquefaction capacity over the rest of this decade. Notably, through 2017, Australia will see new capacity come online from roughly USD 180 billion in investments, which will result in a 25% increase in global liquefaction capacity. Likewise, the US is poised to become a net LNG exporter after the Sabine Pass Liquefaction LLC project goes into service in the Q4 of 2015.
Moody's expects Cheniere Energy's Corpus Christi project will be the likeliest project to move forward this year, since it is among the very few projects in advanced development that have secured sufficient commercial or financial backing to begin construction.
Lower oil prices will result in the deferral or cancellation of most other projects, especially this year. While some companies like Exxon Mobil Corporation can afford to be patient and wait several years until markets are more favorable, most other LNG sponsors have far less financial wherewithal and some may be more eager to capitalize on the billions of dollars of upfront investments they have made already, sooner rather than later.
Greenfield projects on undeveloped property are much more expensive, involve more construction risk and take longer to build than brownfield projects, which re-purpose existing LNG regasification sites. Greenfield projects are also frequently challenged by local opposition and occasionally by untested laws and regulations. Based on the public estimates of companies building new LNG liquefaction capacity, the median cost to build a US brownfield project is roughly USD 800 per tonne of capacity, compared with the more advanced Australian greenfield projects, now estimated at around USD 3,400 per tonne.
Through the end of the decade, Moody's expects LNG demand will grow more slowly versus supply. China will be the biggest variable and most important driver of global LNG in that timeframe. India will see rapid growth, but not be as big of a player as China. Other more mature LNG markets in Japan, South Korea and Europe, which represent the bulk of demand, will have flat growth.
Source : BUSINESS STANDARD