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Up 10 in the first 12

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LNG Industry,

Mark Jones, Stellar Energy, USA, addresses how to navigate growth plans in an uncertain market, with quick capacity an essential requirement.

With the onset of the coronavirus, among other macroeconomic variables, LNG spot prices have been driven to inconceivably low levels during the first half of 2020, halting some global project development. Yet even without the reduction in planned capacity growth due to the coronavirus, there is an expected shortfall of supply to meet the forecasted demand. How can producers of LNG prepare for the forecasted undersupply when new capacity takes years to get online? This article presents data from industry experts on the forecasted recovery in LNG demand and supply deficiency, and how LNG producers can take a steady, calculated approach to increasing capacity during an uncertain time.

The LNG market – before and after the coronavirus

In the 12 months leading up to the World Health Organisation declaring COVID-19 a global pandemic, the industry forecasted a major shortfall in LNG supply for 2023. Late into 2019, as the LNG gold rush started to take hold and projects were under initial development, spot prices started to soften. Recognising strong market fundamentals, the same experts just revised their estimates for the shortfall to begin in 2024, reaffirming the near-term need for capacity. But as LNG cargoes started redirecting delivery away from China due to the spread of the coronavirus, the market started to see a dive in prices. Once the coronavirus had spread across the globe and countries were on lockdown, LNG prices reached levels that caused many producers to consider this as more than just a temporary departure from stability.

Project delays, cancellations, and modifications

As the world struggled to understand the immediate and long-term implications of the coronavirus, various industries and markets reacted as they saw fit. Generally, the LNG market moved into a capital-preservation mode: CNOOC declared force majeure; Woodside delayed FID on Scarborough, Pluto Train 2, and Browse; and Royal Dutch Shell walked away from the Lake Charles LNG project.1,2 Others redesigned projects to be more attractive to investors, such as Next Decade’s move to reduce its Rio Grande LNG project from six trains to five trains. These and other strategies announced during the 2020 pandemic were in light of the notion that the next forecasted LNG shortfall would move to a date well beyond the mid-decade estimate most experts predicted. In short, nobody knew the duration nor depth of this pandemic and its implications on the LNG industry.

This is an abridged version of an article that was originally published in the November 2020 issue of LNG Industry. The full version can be read here.

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