Near-term outlook said to dim for further North American LNG export development

Houston — Demand, supply chain and capital budget shocks from the coronavirus pandemic make it unlikely any more North American LNG export projects will secure financing for construction in the next five or six years, according to an S&P Global Platts Analytics outlook issued June 23.

In recent months, final investment decisions on multiple US and Canadian LNG export projects have been delayed to 2021 or beyond. Some developers have stopped issuing timing guidance. In Mexico, Sempra Energy's Energia Costa Azul had been targeting FID by the end of June, but recently cautioned that receipt of a key permit could be slowed due to the virus.

Platts Analytics, in an outlooked issued during a webinar focused on the Canadian gas market, reflects the concern that, amid a sustained period of low international prices, developers will not be able to support their delivered costs, especially those with more spot exposure and higher upfront expenses.

"We think it is more likely this forecast will come to pass," said Ross Wyeno, lead analyst, Americas LNG, Platts Analytics.

Because of Western Canada's relative proximity to the world's biggest LNG buyers in Northeast Asia, there had been a lot of hope that more export projects would be sanctioned there, especially after Shell-backed LNG Canada decided in October 2018 to move forward with construction.

But global oversupply pushed prices down, and then the coronavirus hit, depressing demand and causing prices to crater further to record lows.

In turn, Canadian gas markets are seeing impacts in price and fundamentals, affecting both the near- and longer-term outlooks. That has put further pressure on additional LNG export capacity development.

Woodfibre LNG, proposed for Squamish, British Columbia, was expected to take FID and begin construction this summer. But, in March, as the virus spread globally, the developers delayed those plans by a year, to summer 2021.

Further uncertainty over that project has been caused by the January bankruptcy filing by one of Woodfibre's preferred construction contractors. Still, for the time being, the developers have said they are proceeding with efforts to meet their pre-construction commitments.

On the US side, new commercial contracting has all but dried up, making it impossible for many LNG expect project developers to secure financing for construction.

There would be shipping advantages to exporting LNG from Mexico's Pacific Coast to Asia – one being the ability to avoid the Panama Canal – but projects there also face market, investment and regulatory challenges.

With more projects using Platts JKM as a price benchmark for contracts, that could also factor into the decision-making process for sanctioning further LNG capacity in North America.The coronavirus has "really crushed" LNG prices, bringing down the JKM to levels not seen before, Luke Stobbart, Platts managing editor, Americas LNG, said during the webinar.

"This situation is expected to persist for another two or three years," Stobbart said.