October 19, 2020 Read More →

Moody’s: Much of proposed U.S. LNG export capacity likely to be delayed for years

S&P Global Market Intelligence ($):

Oversupplied global LNG markets are struggling to rebalance from the shock of the coronavirus pandemic, and new export capacity under construction in the U.S. and elsewhere risks extending the gas glut into the mid-2020s, according to Moody’s Investors Service. This dynamic has created a significantly more difficult environment for commercially sanctioning new LNG projects, and it may cull their number in the U.S., the rating agency said.

“The U.S. is still within reach of becoming the world’s largest LNG exporter by the mid-2020s,” Moody’s said in an Oct. 15 report, pointing to some 14 U.S. LNG projects that have federal permits but have not advanced to construction. “But virtually all of these new U.S. projects are still awaiting contract backing before beginning construction, and today’s oversupplied global LNG markets will likely delay much of this proposed capacity until at least well into the decade.”

The gas glut in the early 2020s will create greater challenges in obtaining the long-term supply deals and pricing commitments that underpinned previous investments in LNG projects, Moody’s said.

“The pandemic-related downturn has trimmed expectations of growth in fundamental long-term demand for LNG in the next five years and has increased investment risks on future capacity expansion projects designed to meet LNG demand beyond 2025,” Moody’s said.

Competitive and financial hurdles have increased for LNG projects, which involve multibillion-dollar investments, high capital intensity, and long-term payback periods, according to the rating agency. Project developers also face increased competition, both from renewable energy sources that are growing at a rapid clip and from proposed large-scale expansions of LNG plants in Russia and Qatar. The large national LNG producers benefit from lower construction costs and low downstream costs, as well as sovereign backing and ownership of most of the local competitive resources.

The growth of global LNG supplies will slow in 2021 and 2022, following a wave of capacity that came online last year, especially in the U.S. The world is struggling to absorb this increase in supply because of a sharp drop in demand that resulted from the coronavirus exacerbating already weak market conditions.

[Corey Paul]

More ($): Pandemic disruption may curb a raft of US LNG projects, Moody’s says

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