As warnings of a coming LNG shortage mount, energy experts are telling the industry that it must figure out a way to meet buyers' calls for shorter contracts while still satisfying lending requirements in order to bring online new liquefaction capacity.
Speaking at a Feb. 28 event hosted by trade group LNG Allies, officials from the U.S. Energy Information Administration and the International Energy Agency joined a chorus of banks, companies and other industry observers in cautioning that an LNG shortfall could emerge in the early to mid-2020s without more final investment decisions for new liquefaction capacity. The signing of new LNG deals has slowed as buyers call for shorter-term agreements and sellers continue to count on 15- and 20-year deals to receive financing.
"The old model is not as well-functioning as it once was," said Tim Gould, who heads the division that puts together the supply-focused portion of the IEA's World Energy Outlook. "There are not that many buyers out there who are willing to commit to the long term."
In the U.S., only Cheniere Energy Inc. exports LNG from a major liquefaction facility. Dominion Energy Inc.'s Cove Point is set to begin shipping LNG any day now, and four other terminals are under construction. Beyond that, four facilities are fully permitted but do not yet have a final investment decision, and a long list of others still seek federal authorization.
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While much of the conversation surrounding global LNG trade had been focused on a period of oversupply projected to affect the market through the early 2020s, talk of a possible shortage that could appear after the current crop of liquefaction terminals come online has gained steam.
"In the past year, there was only one final investment decision made on a new LNG project," said Victoria Zaretskaya, an economist at the EIA. "We're moving from a period of expected oversupply by 2020 or the early 2020s to a potential LNG supply shortfall if the situation continues."
Christopher Goncalves, chair and managing director of the energy group at Washington, D.C.,-based Berkeley Research Group, said banks are already holding "robust" conversations to brainstorm new ways to finance multibillion-dollar LNG export projects. The problem with some of the techniques lenders are looking at is that they raise the overall cost of financing, ultimately driving up tolling fees and making American export projects less competitive, Goncalves said.
What will likely happen is that both lenders and buyers budge, he said. Banks will begin to accept more contracts with terms of less than 20 years, and buyers will agree to sign some traditional agreements in order to bring new liquefaction capacity to market.
"Banks are conservative animals," he said. "They're going to bend a little, but by the time they start bending, some of the buyers will come back with longer-term agreements."

