Twelve new LNG-export projects will add nearly 119 million tonnes a year (mta) of new capacity in the next three years, creating a “prolonged” oversupply, according to a new study by King & Spalding, which describes the increase in liquefaction capacity to 2020 as “unprecedented”.
The 12 projects are:
Three export projects started production last year; Indonesia’s 2 mta Donggi-Senoro project and Australia’s 9 mta Australia Pacific LNG project and the 7.8 mta Gladstone LNG project.
King & Spalding said: “A prolonged oversupply is predicted… creating a buyer’s market. As a result, more buyer-friendly terms are arising in LNG sale and purchase contracts, such as greater volume and destination flexibility.”
India and Pakistan have both recently renegotiated their long-term supply deals with Qatar, King & Spalding notes. “Petronet shook up the market by opting to buy LNG from spot cargoes versus honouring its contracts to purchase LNG from RasGas…
“Other buyers have announced their intention to utilise flexibility in their existing contracts to resell cargoes into the spot market or simply to opt to procure more supplies from the spot market.”
The report warns that if other buyers follow suit, this could have a material adverse impact on financing for new LNG-export projects as lenders scrutinise the risk of buyers not honouring the terms of their long-term take-or-pay contracts.
“Even when buyers simply use their contractual flexibility to divert cargoes into the spot market, such actions could mean more competition for projects and sellers that are looking to place excess cargoes.”