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LNG export developers optimistic as analysts talk possible shortage

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LNG export developers optimistic as analysts talk possible shortage

U.S. LNG export developers are sounding optimistic as analysts and other market watchers start to look beyond the current global LNG glut to a possible shortage in the early 2020s.

While the description of a global LNG deficit was a common sales pitch for companies pushing U.S. LNG export plans, developers said recent reports and slightly higher LNG prices have backed up their claims.

"The reason I'm a little more optimistic is there seems to be some general coalescence that 2022, maybe 2023, is when supply and demand switch, and you've got a shortage again," LNG Ltd. CEO Greg Vesey said Oct. 2 on the sidelines of Energy Dialogues' North American Gas Forum in Washington, D.C.

"I do feel better that [buyers] are seeing that it really is time to make a decision," Vesey said.

Asset management firm Bernstein said in a September report that rapidly growing demand for LNG and a drop-off in investment decisions for new export projects around the world will create an LNG supply deficit in 2023. Bloomberg New Energy Finance offered a slightly more conservative take, although the research organization still sees a "supply-tight" market in the early to mid-2020s that could turn into a shortage beginning in 2025.

"Investment decisions are needed," Sempra LNG & Midstream President Octávio Simões said at the conference. "Historically, we have always underestimated new capacity requirements."

But even as developers stress the need for more LNG export capacity, buyers' reluctance to sign long-term contracts has delayed final investment decisions. LNG Ltd.'s Magnolia LNG project is one of four fully permitted U.S. ventures that have not yet been sanctioned by their sponsors. The venture has a conditional agreement with India's Vessel Gasification Solutions Inc. for about half of Magnolia's planned capacity, but Vesey said the company is still waiting for a buyer to pull the trigger on a binding deal.

Cheniere Energy Inc., which developed the only operational LNG export project in the Lower 48, is awaiting commitments for two additional liquefaction trains at separate export facilities. Cheniere Chief Commercial Officer Anatol Feygin stressed that buyers could see price spikes if developers are unable to move forward with export projects that would add LNG supply to the market. "If our efforts are not successful and customers do not help us underwrite incremental supply ... the market will become tight, prices go higher and we see the negative side of price elasticity of demand," he said.

A dry spell for new LNG contracts has emerged in part because buyers are pushing for short-term arrangements that U.S. developers say do not support financing.

Venture Global LNG recently signed a 20-year agreement with Italian energy company Edison S.p.A, though the contract represented just 1 million tonnes per annum from the proposed 10-mtpa Calcasieu Pass export terminal.

"That was the first one in 2017," Tellurian Inc. CEO Meg Gentle said. "It is unknown whether that is the beginning of a return to 20-year contracting, or it is simply one of many contracts where the median term is getting shorter."