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Global uncertainty clouds future of planned U.S. LNG export terminals

November 25, 2020

S&P Global Market Intelligence ($):

A year that began with expectations of ample investment in LNG export infrastructure may end with no new U.S. projects getting commercially sanctioned. Worldwide, there could be just one LNG export project that advances to that stage in 2020, with Sempra Energy’s recent decision to greenlight its Energía Costa Azul terminal in Baja California.

The market upheaval caused by the coronavirus pandemic and muted investor appetite for new multibillion-dollar LNG infrastructure forced many developers to push back their targets for making final investment decisions, or FIDs, until 2021 or later. Now, 2021 is poised to be a pivotal year in which new capacity may be sanctioned or fall off the board altogether.

“As far as a lot of the big projects that require third-party capital, I just don’t see that being available in the foreseeable future,” Katie Bays, managing director at FiscalNote Markets, said in an interview. “I think that’s out of step with what some companies are saying publicly. But … if you were to step back and look at the state of the industry and ask, ‘Are these companies in a better position than they were two years ago?’ — the answer has got to be ‘No.'”

There were a couple sources of optimism for the U.S. LNG industry. The potential for lowered trade tensions between Washington and Beijing with the departure of U.S. Donald Trump could foster supply negotiations with LNG buyers in China. China is expected to become the world’s biggest importer of the fuel by the end of the decade, making it a critical market for liquefaction terminals in the U.S. Global LNG demand has also rebounded significantly from the summer doldrums, when cancellations of U.S. LNG cargoes were widespread. Feedgas deliveries to the six U.S. LNG export terminals in operation have surged past 10 Bcf/d since then, exceeding the levels before the pandemic took hold.

But significant uncertainty remains over what the export dynamics will look like after the peak winter heating season. Rising coronavirus infection rates threaten to hamper commercial and industrial gas demand. Even with the announced project delays, questions linger about how long the global gas market will take to rebalance after the economic and health crisis. Developers continue to struggle to sign sufficient long-term supply deals with LNG buyers to secure project financing.

“Weak global demand and market conditions have stalled the second wave of LNG projects, and very few projects will take FID without a sustained price recovery,” David Braziel, president of research and analysis firm RBN Energy, said during a Nov. 9 LDC Gas Forums event in San Antonio.

[Corey Paul]

More ($): LNG Project Tracker: Mexico terminal moves ahead as 2nd U.S. wave flounders 

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