Significantly reduced demand, caused by Covid-19 and the oil price plunge, are hindering decisions on 20 LNG liquefaction projects
As a result of far less energy being used due to the Covid-19 pandemic, FIDs on 20 LNG projects – representing almost 228M tonnes of new liquefaction capacity – that were scheduled for this year will be delayed. Of the 20 projects, only three are expected to take FID in 2020.
Among those thought to be moving forward with a FID in 2020 are Qatar Petroleum’s six-liquefaction train expansion, Sempra’s Energia Costa Azul in Mexico and Novatek’s Obskiy LNG in Russia.
One positive sign came in the shape of Qatar Petroleum (QP) reaching a milestone agreement with China’s Hudong-Zhonghua Shipbuilding Group, reserving shipbuilding capacity for its newbuild programme valued at US$3Bn. Newbuild rates for LNG carriers with capacities of 170,000 m3 are US$189M, according to ship broker Fearnleys, meaning roughly 15 to 20 LNG carriers could be built by Hudong-Zhonghua Shipbuilding, a subsidiary of China State Shipbuilding Corporation Limited (CSSC). Depending on its needs, QP could order upwards of 80 new LNG carriers. It is expected to sign contracts with South Korean shipbuilders for additional LNG carriers this year.
Qatar’s North Field expansion projects will increase the country’s LNG production capacity from 77 mta to 126 mta by late this decade.
US projects delayed
FID on Tellurian’s Driftwood LNG, located on the Calcasieu River near Lake Charles, Louisiana, will be pushed back until 2023. With a nameplate capacity of 27.6 mta, Driftwood LNG is the largest of the LNG export projects to be delayed. Tellurian had originally planned to start commercial operations in 2023.
Final investment decisions on two other US projects, NextDecade’s Rio Grande LNG, with a capacity of 27 mta, and Energy Transfer’s Lake Charles LNG, with a capacity of 16.45 mta, were also shelved until 2021.
“Producers have gone from focusing on capex to primarily concentrating on cost-cutting”
Dallas-based Energy Transfer took over as lead developer of the Lake Charles LNG, following Shell’s exit from the Louisiana project in March. While it still believes in the Gulf Coast LNG export facility, Energy Transfer says it is evaluating “various alternatives to advance the project, among which are bringing in equity partners and reducing the size of the project from three trains (16.45 mta of LNG capacity) to two trains (11.0 mta).
“With oil price levels at below breakeven and Covid-19 eroding demand, we have seen delays in FIDs for new LNG capacity,” says Poten & Partners finance advisor, business intelligence Melanie Lovatt. “Producers have gone from focusing on capex to primarily concentrating on cost-cutting.”
Located on the northern embankment of the Brownsville Ship Channel in Cameron County, Texas , Rio Grande LNG received authorisation in March from the US Department of Energy (DOE) to export LNG to non-Free Trade Agreement countries.
Under development by Nasdaq-listed NextDecade, Rio Grande LNG will have a nameplate capacity of 27 mta and four storage tanks, each with a capacity of 180,000 m3 on a 984-acre site at the Port of Brownsville.
In her Poten & Partners podcast, Covid-19, the Oil Price Plunge and LNG Project Development, in April, Ms Lovatt also noted sanction projects are facing delays because of “closed ports, no-fly zone and social distancing” guidelines posing obstacles to staffing, equipment sourcing, workforce retention and construction; LNG Canada in British Columbia, Canada, for example, reduced its workforce by 65%.
FID delayed on Barossa
Even backfill projects have not been spared from the oil price plunge and the reduced demand caused by the pandemic. Australian independent oil and gas company Santos reduced its capex spending by US$550M – almost 40% of its planned budget – and deferred its FID on the Barossa offshore development project. About 300 km north of Darwin, Australia, the Barossa gas field will be developed as the source of gas to backfill Darwin LNG when Bayu-Undan ceases production.
About 500 km northwest of Darwin LNG in the Timor Sea, the Bayu-Undan facility currently supplies the plant with gas via a subsea pipeline. The facility includes a central production and processing complex with a floating production, storage and offloading (FPSO) vessel for condensate and LPG products and an unmanned wellhead platform.
In April, Santos signed a letter of intent (LOI) to sell a 12.5% interest in Barossa to Japan’s JERA, which already owns a 6.1% interest in Darwin LNG.
“Barossa remains an important project for Santos due to its brownfield nature and low cost of supply, and we will continue to use this time to achieve alignment and seek to further strengthen the economics of the project,” said Santos managing director and chief executive Kevin Gallagher.
BP declares force majeure
BP has sent written notification of force majeure to Gimi MS Corp, a subsidiary of Golar LNG Ltd, under the lease and operate agreement between the two companies relating to the Greater Tortue Ahmeyim project in West Africa.
In the notice, BP claims that due to the recent Covid-19 pandemic it will not be ready to receive the floating LNG vessel Gimi on the target connection date in 2022.
BP estimates the delay caused by the claimed force majeure event will be one year.
Golar LNG has asked BP to clarify how a force majeure event discovered as recently as the end of March could immediately impact the schedule by an estimated one year.
Golar LNG is in discussions with BP to establish the duration of the delay and the extent to which this has been caused by the claimed force majeure event. Golar LNG is also in talks with Singapore’s Keppel Shipyard, which is converting the Moss-type LNG carrier Gimi for FLNG service offshore Mauritania and Senegal in West Africa, to reschedule its capital spending commitments for 2020 and 2021.
|LNG export project FIDs delayed by Covid-19|
|Project||Mta||Original FID||New FID||In service||Operator|
|Qatar 6-train expansion||49||2020-21||3 to 6 mo delay||2025-27||Qatar Petroleum|
|Port Arthur LNG||13.5||2020||Delayed||2024||Sempra|
|Energia Costa Azul||2.4||Q1 2020||Q2 2020||2024||Sempra|
|Corpus Christi LNG 3rd phase||10||2022||Not available||2024||Cheniere|
|Woodfibre LNG||2.1||2020||2021||2024||Pacific Oil & Gas|
|Rio Grande LNG||27||2020||2021||2024||NextDecade|
|Freeport T4||4.5||2020||Not available||2024||Freeport LNG|
|Placquemines LNG||10||2020||Not available||2024||Venture Global|
|Goldboro LNG||10||2020||Delayed||2023||Pieridae Energy|
|PNG LNG expansion||2.7||2020-21||Delayed||2024||ExxonMobil|
|Lake Charles||16.45||2020||2021||2025||Energy Transfer|
|Annova LNG||6||Q2 2020||Delayed||2024||Excelon|
|Commonwealth LNG||8.4||Q2 2021||Not available||2024||Commonwealth|
|Obskiy LNG||5||H1 2020||H2 2020||2022-23||Novatek|
|Greater Tortue Phase 2||3.8||2020||2022||2025||BP|
|Greater Tortue Phase 3||3.8||2020||2023||2026||BP|
|Source: Poten & Partners|