Bloomberg are reporting that the failure of a US$27 billion project last week may offer a lesson to natural gas exporters: Go small or go home.
With a global glut dragging down prices, LNG suppliers including Cheniere Energy Inc. and Tellurian Inc. are looking to build smaller and cheaper. Such projects – a third of the size and a fraction of the cost of most existing terminals – offer a competitive edge for supplying emerging markets like the Middle East and Latin America, where customers are seeking intermittent deliveries of small amounts of the heating fuel.
Petroliam Nasional Bhd.’s decision last week to scrap plans for the US$27 billion facility in Canada stemmed from low gas prices. Energy companies have not moved forward with a major new LNG production plant since the end of 2014. Instead, they are funding smaller ventures such as Coral LNG in Mozambique and Woodfibre LNG in Canada, neither costing more than US$10 billion. Ophir Energy Plc plans to sanction Fortuna LNG, a small floating facility off the coast of Equatorial Guinea, this year.
Cheniere, which began liquefying and exporting US natural gas from a massive facility in Louisiana last year, is exploring building smaller-scale projects. Global LNG supply is forecast to exceed demand by 48% in 2020.
Japan and Korea, the world’s biggest LNG customers, are no longer the only game in town. Small buyers including Pakistan, Egypt and Jordan are making up an increasing share of the global market. They will account for 30% of demand by 2030, up from 19% last year.
In addition, spot LNG prices in Northeast Asia have plunged 46% to US$5.85 per million British thermal units in the past three years. US benchmark natural gas prices are down 26% over the same period and UK front-month gas fell 7%.
Some exporters are heading offshore in a bid to cut costs. Petronas in April became the first to produce LNG from a small-scale, floating terminal. Royal Dutch Shell Plc plans to ship gas from a similarly small project off Australia’s coast next year.
In the US, Kinder Morgan Inc. is developing a US$2 billion gas export project in Georgia that will be made up of 10 individual units that combined will be capable of liquefying 2.5 million tpy – less than a tenth of what Cheniere’s Louisiana project will be able to produce in 2020.
Australia’s Liquefied Natural Gas Ltd., Tellurian, Texas LNG and offshore developer Delfin LNG are also vying to build these so-called modular projects.
Read the article online at: https://www.lngindustry.com/liquid-natural-gas/02082017/the-little-guy-is-winning-in-the-gas-market/