What does COVID-19 mean for the LNG industry?
At least 10 global LNG projects, including projects in Australia, the U.S., Mozambique, Qatar, Mauritania, and Senegal, have been put on hold over the past month.
“They don’t quite recognize that their economic heart has stopped beating,” Williams-Derry said, noting that none have officially been canceled.
On March 30, Royal Dutch Shell — the company with the biggest share in LNG Canada at 40 percent — announced it would pull out of a proposed LNG project in Lake Charles, Louisiana, leaving the project in the hands of a second investor.
In most cases, project delays were pinned on the novel coronavirus, “while ignoring the fact that LNG prices were already deflating long before the worst impacts of the pandemic were being felt,” Williams-Derry wrote in an analysis for the U.S. Institute for Energy Economics and Financial Analysis.
“The LNG industry thought it had a clear crystal ball,” he said in an interview. “LNG demand was rising. Asian demand was rising. And that gave them a clear pathway to profits.”
“Now there are more risks and more uncertainty than anybody had anticipated.”
The headlines in oil and gas industry publications say it all. “LNG: From Hero to Zero.” “Giant LNG projects face coronavirus death or delay.” “The LNG market is ‘imploding.’ ”
As most people focus on the oil price collapse, scant attention has been paid to the similarly poor fortunes of another fossil fuel — one in which B.C. is heavily invested through the LNG Canada project. The project would ship fracked gas from northern B.C. to Kitimat via the Coastal GasLink pipeline, where it would be cooled and liquefied for transport to Asia on tankers.
The liquefied natural gas (LNG) industry was taking a hit even before the COVID-19 pandemic, with a glut in supply and several years of unusually warm winters reducing demand. But now the far-reaching global recession kindled by the pandemic has driven LNG prices to new rock-bottom lows, with prices falling faster than Brent crude.
The LNG equivalent of a barrel of oil — in terms of energy — can now be purchased for US$11 on the Asian spot market, costing less than two pints of beer at your local pub (if drinking establishments were open, that is).
That’s an 80 per cent drop from the price LNG fetched on the Asian spot market in October 2018, when LNG Canada announced its final investment decision.
European LNG storage could be full in July instead of in the autumn, when it’s usually full, according to Robert Ineson, executive director of global LNG for IHS Markit.
“The entire supply chain is clogging up,” Ineson told The Narwhal. “We’re seeing cargos canceled, so they’re not getting into ships in the first place — in part because the price spreads don’t justify economically making the transaction but also, as you have cargos sitting in tankers, those tankers are not available to take on new cargos.”
In April, less than four months into the year, the industry publication Natural Gas World pronounced 2020 a “catastrophic” year for LNG sellers, saying, “demand is declining, supply is growing and this will continue for some time.”
Even in the unlikely event a vaccine is rapidly developed for COVID-19 and economies quickly rebound, analysts, say a bonanza of new LNG projects around the world will keep a lid on prices, making some LNG export projects uneconomical.
It all poses huge challenges for Canada’s aspiring LNG industry, which is still four years away from exporting a drop of liquefied natural gas.
What do the pandemic and the rapidly changing global market mean for the LNG Canada project, which was only economically viable with an initial infusion of $5.35 billion in subsidies from the B.C. government?
And what will happen to Canada’s other planned LNG projects, including the Woodfibre LNG project in Squamish, owned by Indonesian billionaire Sukanto Tanoto?
Here are 10 things you should know as the pandemic takes a hit on the overlooked fossil fuel sitting in the shadow of the oil price collapse.