Unless something catastrophic happens in terms of the global economy, the expectation as 2018 draws to a close is that more FID’s are coming in 2019, says Susan L Sakmar, author of Energy for the 21st Century: Opportunities and Challenges for LNG
In October 2018, Shell and other project sponsors took FID on LNG Canada, giving rise to optimism throughout the LNG industry that this was just the tip of the megaproject iceberg.
Here are some of the key issues to watch for as the LNG industry kicks off another year.
In 2018, the US-China trade war dominated the news cycle and is expected to continue do so leading in to 2019.
With China viewed as the 'emerging giant' of natural gas and LNG demand, there was hope after Cheniere and CNPC signed the first US LNG deal in February that more US LNG export projects would find Chinese backers. But discussions and US exports to China came to a halt after China slapped a 10% tariff on US LNG in August 2018.
While most of the recent focus has been on commodities like soyabeans, LNG is a strategic product for both countries, with China needing more LNG as it switches from coal to cleaner burning natural gas, and the US eager to get a second wave of US LNG export projects underway.
Whether or not LNG will help facilitate a broader trade agreement between the US and China remains to be seen, but 2019 will be a critical year for trade between the world’s top two largest economies.
Regardless of how or when US-China trade tensions are resolved, the first wave of US LNG is still coming in 2019.
US LNG exports have really only just begun with export capacity expected to reach 4.9 Bcf/d by the end of 2018 as Cheniere brings online Corpus Christi Train 1 and Sabine Pass Train 5.
In fact, the US EIA projects that US LNG export capacity will reach 8.9 Bcf/d by the end of 2019, which would make the US the third largest LNG exporter in the world behind Qatar and Australia.
Many US LNG export projects have been proposed for the 2nd wave of US LNG, targeting 2023 for completion. These include Golden Pass LNG, an existing US LNG import terminal that plans to add liquefaction for exports and is backed by ExxonMobil and Qatar Petroleum.
The US Federal Regulatory Commission and the US Department of Energy have approved Golden Pass as well as Magnolia LNG, Delfin LNG, Lake Charles and the sixth train at Cheniere’s Sabine Pass. Beyond these front-runners are a number of other projects in various stages of development and targeting FID in 2019, including Next Decade’s Rio Grande, Tellurian’s Driftwood LNG, Venture Global and others.
Three business models are emerging for US LNG export projects – SPA Model (Cheniere), Tolling Model (Cameron LNG, Dominion, Freeport LNG) and Equity Model (Tellurian). It remains to be seen in 2019 which model will prevail for the second wave of US LNG projects.
Loosening Russia’s energy grip over Europe has been a goal of US administrations dating back decades, but tensions have ramped up of late as both the US and Russia attempt to capture greater market share.
While Russia’s ambitions to become a major LNG supplier to Europe and beyond grow, the US has been urging Europe to cut its reliance on Russian gas and buy US LNG instead. The US has also called on European countries to reject various Russian gas pipelines.
As the second-largest LNG supplier to Europe (after Qatar); Russia currently exports about 21 mta of LNG from two projects, Sakhalin II operated by Sakhalin Energy, a joint venture between Gazprom, Shell, Mitsui and Mitsubishi, and the Novatek-operated Yamal LNG with Total as a partner. Russia’s Arctic 2 is targeting FID in 2019 and Russia also has three major pipelines that will come online in 2019 – Nordstream 2, Turkstream and the Power of Siberia which will supply China.
Some analysts predict that pipeline bottlenecks, not politics, will limit Russian flows into Europe post 2020, so several European LNG import projects are in the works. This could bode well for more US LNG in to Europe in 2019 and beyond, especially if price signals shift from Asia to Europe.
In November, Australia just barely overtook Qatar as the world’s largest exporter of LNG, loading 6.5M tonnes of LNG for export while Qatar exported over 6.2M tonnes. And Australia will add to its production capacity as the much-awaited Shell Prelude comes online sometime in 2019.
Most analysts expect Australia’s top position to be fairly short-lived, with Qatar expected to regain the top spot by the end of 2018 and Australia only topping Qatar again in mid-2019, when Ichthys and Prelude ramp up.
Over the longer term, it’s expected that Qatar will remain the world’s largest exporter until it's overtaken by the US in 2035, according to projections by Cedigaz.
Wood Mackenzie predicts that 2019 could be a record year for LNG project sanctions with over 220 mmta of gas targeting FID. While not all of this is expected to happen in 2019, Woodmac expects over 60 mmta to take FID in 2019. At the moment, projects backed by major players are back in favour with some of the front-runners being Mozambique (two projects are pending – one backed by Anadarko and one by ExxonMobil), expansion projects in Qatar, expansion of ExxonMobil’s Papua New Guinea LNG, and Russia’s Arctic LNG-2.
Although the global economy is facing some headwinds at the end of 2018, long-term demand for LNG is expected to grow, which will require the deployment of billions of dollars in the near term to build out the necessary export and import infrastructure. The mood is good and 2019 will no doubt be an interesting year for the global LNG industry.
For further discussion of LNG prospects in 2019, book your place at the LNG Ship/Shore Conference in Singapore in May.