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Low NatGas Demand Could Shelve $283B of LNG Projects Worldwide by 2025

A low demand scenario over the next decade would make dozens of liquefied natural gas (LNG) projects proposed worldwide and valued at an estimated $283 billion "uneconomic," according to a study by Carbon Tracker Initiative.

Efforts to reduce emissions in order to keep global warming below a 2-degrees centigrade United Nations' target could lead to such a scenario, according to the study, though "there is some room for gas demand growth to 2040, unlike coal and oil use that must peak and decline.

"But if the world is to stay within a carbon budget that limits global warming...energy companies will need to be selective over which projects they develop," the London-based think tank said.

The study concluded that $71 billion of potential LNG capital expenditures in the United States and $82 billion in Canada would not be needed through 2025 in the low demand scenario.

"The size of the gas industry in North America could fall short of industry projections -- especially those expecting new LNG industries in the U.S. and Canada," said Andrew Grant, lead analyst at Carbon Tracker. "Avoiding the combination of U.S. shale gas being exported as LNG will be important if we are to use the carbon budget most efficiently."

Sixteen of the world's 20 biggest LNG companies are considering major projects that are unlikely to be needed to meet demand to 2025, according to the study. Only three -- Eni SpA, Cheniere and Noble -- have additional projects that are needed to meet demand to 2025.

Royal Dutch Shell plc's $70 billion buyout of UK rival BG Group plc will create an LNG powerhouse with LNG terminals worldwide and current capacity of 33 million metric tons/year (see Daily GPIJune 17; April 8), but $85 billion of the company's potential LNG project options might not be needed under the study's low demand scenario. "Shell has disclosed that it assumed oil prices will recover to $90 per barrel in making the offer, which translates to an oil-linked LNG price of $14-15/MMBtu based on typical contract pricing formulae," the analysts said. The study assumed a long term breakeven test of about $10/MMBtu.

More than half of the unneeded LNG capex relates to unconventional gas projects in the United States and Canada. "Foregoing this supply will limit future greenhouse gas emissions," according to the study.

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