LNG projects must control costs to stay competitive

Projects should be profitable below US$10 per million British thermal units or the assumption that emerging market demand for LNG will rise could be called into question.

Companies struggled to move towards final investment decisions (FID) last year as lower LNG prices combined with rising costs in addressing environmental concerns put a question mark on project viability.

Costs for the Gorgon project in Australia that started up in March last year were initially projected to be at US$37 billion and then increased to US$54 billion. The Ichthys project slated to begin in the third quarter has experienced a 10% rise in costs since FID in January 2012.

Natural gas prices have traditionally been higher in Asia because of the lack of a pipeline network so gas has to be liquefied for transport on ships.

Producers have typically insisted on long term contracts for expensive projects to convince banks to fund them, along with a link to oil prices.

While LNG prices surged in the aftermath of Japan's Fukushima disaster in 2011, which led to the shutdown of most of the country's nuclear reactors, a two-year decline in oil prices has pushed the spot price of LNG in Asia down 70% from its 2014 highs.

JERA has led the way in pushing for changes in contracts that restrict the resale of LNG cargoes and the linkage to oil prices.

JERA received Japan's first LNG cargo derived from US shale gas in January but paid nearly twice as much for fuel as its cheapest imports.

Read the article online at: https://www.lngindustry.com/liquid-natural-gas/08032017/lng-projects-must-control-costs-to-stay-competitive/