After five years of strong growth, LNG trade volume is expected to grow by only 1% this year, hampered by Covid-19 energy demand destruction and weakening gas prices, said Clarksons Research
LNG trade growth has been nothing short of phenomenal the last five years, with volumes increasing 43% between 2015 to 2019 to reach 356M tonnes. Weakening gas prices prior to the Covid-19 pandemic and the energy demand destruction following the outbreak have combined to stall that growth, said a leading energy analyst.
Clarksons Research managing director Stephen Gordon said LNG has a “long ‘stop-start’ history and it looks like 2020 will see recent growth stall.” However, Mr Gordon is not dour about LNG’s future. “Despite these challenges, there remains encouraging long-term growth potential and increasing opportunities from the bunkering market,” he added.
Prior to the start of this year, Mr Gordon said the expectations were for a 7% growth in LNG trade, following a 12% increase in 2019. Last year has seen export projects in the US, Australia and Russia boost LNG trade, with ready buyers in China, Japan and South Korea, and emerging markets in southeast Asia. What a difference a year (and pandemic) can make.
“Helped by US exports, seaborne trade held up in Q1 2020 (with a 10% year-on-year growth) but trended back to 2019 levels by Q2 despite recovery in China imports,” said Mr Gordon, writing in Shipping Intelligence Weekly. “And our current projections suggest trade growth will fall to just 1% across 2020 before recovering next year.”
When it comes to the LNG industry’s stop-start history it is hard not to say, ‘Here we go again.’ Mr Gordon rightly pointed out that while the 20-year growth trend is 7%, “trade stalled in 2012-2015, 2008, the early 1990s and early 1980s.”
Furthermore, Mr Gordon said another industry bugbear, project slippage, has reared its ugly head. “After record FID sanctioning in 2019, with close to 70 mta, we estimate over 170 mta of projects scheduled for FID have been delayed, with further delays to projects already under construction,” said Mr Gordon. There were no FIDs in H1 2020 and the conditions in the market remain tough. “The capex spend of energy companies remains under constant review and gas prices are at record lows,” added Mr Gordon.
Historically low natural gas and LNG spot prices in Europe and Asia have impacted the economic viability of US LNG exports, making them less competitive, says the US Energy Information Administration (EIA).
EIA said trade press reports indicate that over 70 US LNG cargoes were cancelled for June and July deliveries and another 40 for August.
It is a sharp turnaround of events for US LNG exports, demonstrating how Covid-19 has shaken up the market. By contrast, 74 LNG cargoes totaling 8.1 Bcf/d – record highs – were exported from the US in January 2020.
Several US LNG export facilities continued to bring new capacity online in 2020. In May, the third train at the Freeport LNG export facility in Quintana Island, Texas began commercial operations, with additional trains due in Q3 2020 at Cameron LNG (Train 3) in Hackberry, Louisiana, and three moveable modular-liquefaction system (MMLS) at Elba Island’s small-scale liquefaction facility in Chatham County, Georgia.
Another US LNG export project in Louisiana switched hands in May. Privately held energy infrastructure developer Glenfarne Group said it has completed the acquisition of Magnolia LNG. The acquisition was made through Glenfarne’s newly formed subsidiary Magnolia LNG Holdings.
Sited on 115 acres on the Industrial Canal near Lake Charles Louisiana, Magnolia LNG is an 8-mta LNG export project that has completed the US Federal Energy Regulatory Commission permitting process. Magnolia LNG would receive feed gas through the existing Kinder Morgan Louisiana Pipeline, and will pretreat, liquefy and store the LNG onsite for domestic use and export. Glenfarne also acquired Magnolia LNG’s patented OSMR liquefaction technology.
“Magnolia LNG is a well-known and high-quality project to which Glenfarne brings its funding, marketing, development and construction expertise to take it to final investment decision, and then construct and operate the asset,” said Glenfarne founder and managing partner Brendan Duval. “We believe in the essential role that natural gas plays in the transition to a lower carbon world.”
Glenfarne’s two operating subsidiaries are Alder Midstream, which focuses on building, owning and operating midstream assets, and EnfraGen, a developer, owner and operator of specialised power generation assets.
The acquisition of Magnolia LNG increases Glenfarne’s LNG export capacity to approximately 12 mtpa, 4 mtpa of which comes from Texas LNG Brownsville, a late-stage LNG export development project in Brownsville, Texas for which Alder Midstream is the majority owner and managing member.
Oracle of Omaha bullish on gas
While growth in the LNG market has stalled, one person who is bullish on the future of natural gas appears to be the Oracle of Omaha. An affiliate of billionaire investor Warren Buffett’s Berkshire Hathaway Inc has struck a US$9.7Bn deal with US utility Dominion Energy to purchase substantially all of its gas transmission and storage segment assets, and an operating interest in the Cove Point LNG facility.
Announced in July, the definitive agreement includes assumption of US$5.7Bn of existing debt and US$4Bn in cash.
Assets covered by the sale agreement include Dominion’s ownership interests in Dominion Energy Transmission, Questar Pipeline (including Overthrust and White River Hub), Carolina Gas Transmission, Iroquois Gas Transmission System (50% interest), legacy gathering and processing operations, farmout acreage, as well as a 25% operating interest in Cove Point.
Dominion’s interest in the Atlantic Coast Pipeline is not included in the deal.
Due to close in Q4 2020, the transaction must get regulatory and US Department of Energy approvals.
Independent owners control fleet
Any delays in LNG projects, of course, also impact fleet growth. “Managing the uneven growth of LNG particularly when ships deliver and the projects slip back has always been a challenge, especially as independent owners now manage more of the risk,” said Mr Gordon. Clarksons Research says independent owners now manage 73% of the fleet, up from 58% in 2010. Clarksons Research reported the current orderbook stands at 139 LNG carriers, representing a total capacity of 20.6M m3. Those figures represent 23% of the current fleet size of 606 LNG carriers and capacity of 90.6M m3, respectively.
In 2020, the LNG fleet will grow by 5.3% and another 9% in 2021.
Despite the current stall, however, Mr Gordon remained upbeat on the outlook for the LNG market. Projects for the market suggest it growing to between 500 to 700 mta by 2030. “Many of the underlying positive trends around LNG still seem to remain in play and the project profile also suggests a further export ‘wave’ by the middle of the decade,” he said. Concluded Mr Gordon, “LNG’s ‘bridging’ role in the energy mix transition, including the potential for bunkering, and its export ‘geography’ should still lead to plenty, albeit uneven, growth for shipping.”
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