Although a record amount of new liquefied natural gas (LNG) capacity coming online is expected to keep global gas prices in a lull through 2020, there is an abundance of appetite to warrant the sanctions of some of the 19 million metric tons of LNG awaiting final investment decision (FID), according to Wood Mackenzie.
A “mind-boggling” $200 billion in capital expenditures (capex) is expected in the firm’s base case global outlook through 2025, with additional upside risk to both capex and potential LNG capacity growth as a host of strong contenders vie for market share, Wood Mackenzie LNG analyst Lucy Cullen said Thursday on a GasTalk webinar.
“There’s still a lot of appetite for these projects to move forward. As the market starts to tighten once we come out of this current oversupply, there is certainly a lot of demand out there from established buyers as well as new buyers in existing LNG-consuming countries,” Cullen said.
One tailwind for LNG demand growth is the decision by Japan’s Nuclear Regulation Authority (NRA) to order shutdowns on any reactors for which power companies have not met deadlines for installing anti-terrorism safety features. The agency in April denied an extension request for the installations.
“Just when we thought nuclear restarts were gaining momentum and perhaps out of the woods, the NRA has reminded us how uncertain Japan’s nuclear outlook still is,” Cullen said. She noted that it is likely that no nuclear reactors would be able to meet the deadline, and the potential shutdowns -- for which a timeline has not been announced -- provides additional upside for Japanese LNG demand as well as coal.
The first nuclear reactor closure could come as early as March 2020, with the loss of capacity during the winter 2020-2021 supporting some 1.5 million metric tons of LNG demand during that time period. Another 3.5 million metric tons of potential upside demand could be seen in 2022.
Cheniere Inc.’s company chief also noted the potential demand growth in Japan during the company’s 1Q2019 earnings call last month.
On the flip side, the ongoing trade dispute between the United States and China -- now in the ninth month in which tariffs have been in place -- is seen as creating risk and uncertainty around the long-term market. Chinese buyers may be hesitant to sign up for long-term volumes from U.S. facilities, which will encourage support for other non-U.S. projects, Cullen said. “We’ve seen this happening already.”
Cullen pointed to the 13-year agreement reached earlier this year between China National Offshore Oil Corp. (CNOOC) Gas and Power Singapore Trading & Marketing Pte. Ltd. and Anadarko Petroleum Corp. for 1.5 million metric tons/year of LNG from Anadarko’s Mozambique LNG export project. CNOOC and China National Oil and Gas Development Co. also signed up to acquire 10% each in Russia’s Arctic LNG -2 export project.
The trade war, although a blow to U.S. LNG developers, “isn’t necessarily fatal,” Cullen said. “There’s still an abundance of interest from established buyers around the world.”
Cullen noted that first-wave U.S. LNG projects had very limited offtake from China, while State-owned Saudi Arabia Oil Co., aka Aramco, recently signed a heads of agreement to negotiate buying a 25% stake in Phase 1 of Sempra Energy’s natural gas export project in Port Arthur, near Houston.
“Non-Chinese investment is still forthcoming,” Cullen said.
While a host of proposed LNG export projects await FID, the first commissioning cargo from Cameron LNG, located in Hackberry, LA, set sail, the company announced Friday.
“Connecting Cameron LNG and Hackberry to the four corners of the world with cleaner-burning fuel with our first LNG cargo is truly a proud moment for all of our employees who have been working tirelessly for the last few years,” Cameron CEO Farhad Ahrabi said.
Genscape Inc. told NGI that the “Marvel Crane” vessel arrived empty at Cameron LNG on Tuesday and was still at berth Wednesday. The firm said the “BW Everett” was also headed for Sempra’s liquefaction facility; the tanker entered the Gulf of Mexico Wednesday morning, according to Genscape LNG analyst Allison Hurley.
“Farther out, our team can also confirm that ‘Shinshu Maru’ is currently in the northern Atlantic with destination listed as “CAMERON,” Hurley said.
Cameron LNG completed all major construction activities for Train 1 and began the commissioning and start-up process in November 2018. The facility began producing LNG in May.
“Commissioning cargos are a vital part of the start-up process and support stabilizing production and performance testing. Commercial operations will follow completion of performance testing and receipt of the Federal Energy Regulatory Commission authorization to commence service,” the company said.
Completion of the second and third trains in Cameron LNG’s first phase has been pushed back to the first half of 2020, with longer construction schedules and commissioning for those units, Sempra management said during a quarterly conference call earlier this month.
Cameron LNG is jointly owned by affiliates of Sempra LNG, Total, Mitsui & Co., Ltd. and Japan LNG Investment, LLC, a company jointly owned by Mitsubishi Corp. and Nippon Yusen Kabushiki Kaisha.