February 3, 2020 Read More →

ExxonMobil’s Woods still betting on long-term growth in global LNG market

S&P Global Market Intelligence ($):

ExxonMobil expects investments in the global LNG sector to slow as the market works through a supply glut that has pushed prices to record lows, CEO Darren Woods told financial analysts during a Jan. 31 earnings call.

“Investments in that space will probably slow,” Woods said. “Eventually, the demand will catch up to the supply and things will improve…It’s the same dynamic of capital-intensive long-cycle investments.” The CEO’s comments reflected an LNG market that has grown increasingly bearish for the near term because of weak winter demand for natural gas and the startup of new LNG export plants.

Woods suggested there is a lack of urgency at his company to greenlight new LNG export infrastructure in the oversupplied environment and said new projects will have to compete within the existing portfolio. Responding to a question over media reports that negotiations broke down between Exxon and the Papua New Guinea (PNG) government over a key political agreement for a gas deal that the PNG LNG export project needs to advance to construction, Woods said there is no rush to develop the project, which used to have a target for a final investment decision, or FID, in 2020.

The Platts Japan Korea Marker, the benchmark price for spot-traded LNG in Northeast Asia, hit a more than 10-year low when it dropped under $4/MMBtu on Jan. 23, according to S&P Global Platts. Margins have also weakened for selling spot LNG cargoes to Europe. In the U.S., the oversupply picture is spurring increasing concern that profits could weaken to the point that shipments from U.S. LNG facilities will be curtailed and send prices in the domestic market to uncharted lows.

Woods did not specifically address the route the company would take to sanction multibillion-dollar LNG export projects. Exxon and Qatar Petroleum took a relatively novel approach when they commercially sanctioned the Golden Pass LNG project in Texas in February 2019. That was because the partners went forward without announcing any long-term off-take agreements for the project, which will be able to produce around 16 million tonnes per annum of LNG. Most developers have relied on long-term take-or-pay contracts to allow them to secure financing for their projects.

Few backers of LNG projects in the world have deep-enough pockets to take this approach in advancing a project to construction. But some market observers have warned the approach could heighten the risk of overbuilding supply to meet an expected surge in demand in the mid-2020s.

 [Corey Paul]

More ($): Exxon predicts waning investment in global LNG amid supply glut

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