BAKU, Azerbaijan, Nov.21
By Leman Zeynalova – Trend:
The global gas markets are soft today but could tighten in the next few years, and new projects will need to be sanctioned to meet future demand, Trend reports citing Deloitte’s 2020 oil, gas and chemical industry outlook.
“A number of projects were sanctioned in 2019, both in the United States and internationally, but most were either brownfield or sold without long-term offtake contracts. This is not an option for greenfield developers relying on project financing. Instead, finding anchor buyers in 2020 is expected to be key,” reads the report.
Deloitte analysts point out that while the US gas market remains a key strength for domestic developers, the contract terms are no longer as differentiated as they once were, with competitors willing to provide flexibility in a buyers’ market. “Add in tariffs and low oil prices, US cargo pricing is not as attractive as it once was. That has not stopped the market.”
The report says that the US LNG export growth has been near exponential since 2016, exceeding 5 billion cubic feet per day (bcfd) for the first time in 2019.
“It has not stopped growing yet, and once the current projects under construction are completed and fully ramped up, export capacity could hit 10 bcfd by 2021. While European and Asian prices are at decade lows, Henry Hub prices remain even lower, supporting the competitiveness of US LNG exports into a soft global gas market. This has cut into profits for existing exporters, but it poses a bigger challenge for project developers looking to sanction in 2020—and it is not the only headwind on the horizon,” said Deloitte.
The company expects changes in the second wave of US LNG.
“US LNG projects’ value proposition historically has been based on three things. First, access to a highly liquid and interconnected, low-price natural gas market. Second, contracts with flexible destinations and multiple pricing mechanisms. Third, lower, less volatile, delivered costs than many competing oil-indexed projects have built in recent years. This is likely to change for the second wave of US LNG.”
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