Record gas prices slow down LNG investments in Asia; N. America struggles with exports

SINGAPORE/NEW YORK/BENGALURU, Oct. 7 (Reuters) – Some of the world’s largest liquefied natural gas (LNG) importers are cutting orders in the face of a 500% price hike within a year, leading major manufacturers to worry about possible long -term destruction of demand.

LNG buyers, including many emerging economies in Asia, are struggling with prices that have doubled in the past month, while a growing number of exporters in North America are scrambling to increase export capacity, which will be years before it comes online.

Natural gas is seen as a more acceptable fossil fuel as growing economies such as India, China and Pakistan seek to reduce CO2 emissions because it burns cleaner than oil and coal. But the surge in natural gas prices is pushing energy suppliers back to coal and fuel oil and is rethinking new LNG investments in Southeast Asia, which are expected to be at the heart of LNG demand growth.

Within Asia, which accounts for 70% of global LNG imports, most long-term contracts are oil-linked. But South Asian countries like India, Pakistan and Bangladesh – which together account for 20% of Asia’s imports – have much greater exposure to spot prices for LNG, which are currently at an all-time high of over $50 per million British thermal units. (mmBtu) lie.

.

That has raised the alarm among developers in Southeast Asia as analysts say plans for new LNG regasification terminals may now be delayed amid high LNG prices and after government budgets were stretched by costly COVID-19 outbreaks, a source said. is with contract negotiations.

“New buyers are under a lot of pressure to justify signing contracts at these prices, so they are slow in advancing discussions,” said the source, noting a sharp drop in enthusiasm among potential buyers to even buy LNG. -projects compared to a year ago. He declined to provide more details or be named due to the sensitive nature of the deals.

Rising prices were initially welcome for major export terminal operators in the US. However, cost volatility makes it more difficult to sign additional long-term contracts and is a source of frustration as they know they won’t be able to add incremental export capacity until next year.

“We didn’t like the low and flat prices around the world of about $2 per mmBtu from a year ago, and I’m not sure what I hate more about the very high prices we’re in now,” said Anatol Feygin, Chief Commercial Officer at Cheniere Energy Inc’s (LNG.A), the largest LNG exporter in the United States. “It’s a reflection of the fact that the markets aren’t very good at investing through the cycle.”

However, Feygin said Cheniere would soon decide on an additional expansion of its Corpus Christi LNG export plant in Texas, noting that global prices, compared to lower US prices, are a tailwind for the company.

US gas prices are currently at their highest level in seven years, but are far from Asian and European at $6 per million UK thermal units. The United States only has the capacity to convert about 10.5 billion cubic feet per day (bcfd) of gas into LNG — about 10% of the gas it extracts from the ground.

Global markets will have to wait until later this year to get more from the United States, when the sixth liquefaction train at Cheniere’s Sabine Pass and Venture Global LNG’s Calcasieu Pass in Louisiana is expected to begin producing LNG in test mode.

After that, the world may have to wait even longer for additional US or Canadian projects. Houston-based Tellurian Inc (TELL.O), which announced three long-term agreements in the summer to sell LNG to units of Royal Dutch Shell PLC (RDSa.L), Vitol SA and Gunvor Group, is expected to begin production of LNG. LNG in at the end of 2025 at the earliest, said Charif Souki, executive chairman.

In British Columbia, LNG Canada is not expected to be commissioned until around 2025. In addition, numerous proposed projects were scuttled between 2019 and 2020 due to persistently low prices.

LACK OF INVESTMENT

Newer LNG buyers in Asia are more affected by price volatility than established importers, who can mitigate the impact of higher spot prices by bundling those purchases with existing cheaper oil-related supplies, said Valery Chow, vice president of Wood Mackenzie.

“Rising LNG import bills are putting a heavy strain on national budgets and (Bangladesh and Pakistan) are actively looking to move from gas to cheaper alternatives, such as fuel oil, for power generation,” Chow said.

Bangladesh has been cutting back on LNG imports, with the total number falling 33% in September from the previous month, data from Refinitiv Eikon vessel tracking systems shows. The country is also considering extending leases for five oil-fired power plants and possibly increasing fuel oil imports.

Pakistan has canceled and reissued LNG tenders in the past two months, and may consider relying on short-term imports in the future, an industry source said.

There are signs of demand erosion in established buyers India and China. India’s LNG imports are down 4.2% through September compared to the same period in 2020. In China, second-tier gas importers – mainly city gas companies – are scaling back spot purchases.

In South Korea, Asia’s third largest importer, a buyer described the situation as “chaos”.

“The current market situation is not a healthy one to be in,” Qatar’s energy minister Saad al-Kaabi said on the sidelines of a virtual LNG conference in Japan. The country is the world’s largest LNG supplier and has said it will increase production by about 40% to 110 million tons per year by 2026. read more

If LNG prices extend their recent rise, budget-conscious buyers may have no choice but to curb demand.

“With winter… and no sign of any easing in LNG prices, demand side management and ultimately energy rationing could be a last resort,” Wood Mackenzie’s Chow said.

Reporting by Jessica Jaganathan, Scott DiSavino and Brijesh Patel; Editing by David Gaffen, Gavin Maguire and Raju Gopalakrishnan

Our standards: The Thomson Reuters Trust Principles.