LNG is still the “hot” topic? Analysts in the energy sector are convinced, on the basis of the current situation, which is seeing the entry into production of a series of projects started a decade ago. In this difficult period the major oil companies are planning and authorizing new projects for the coming years, effectively creating the basis for a second expansion of LNG supply.
2019 was a record year for final investment decisions (FID) on new LNG projects. The technical timing for the start of production makes experts predict that in a few years gas production will be much higher than the current one, even if they warn the industry to avoid what happened in the past with cost overruns, for which the first wave of LNG projects has become famous.
The planned investment volume is also important: according to an estimate provided by Wood Mackenzie, it should be around 200 billion dollars between 2019 and 2025. The funds should go to benefit above all the contractors engineering, procurement and construction (EPC).
For Michael Stoppard, Vice President and Chief Strategist for Global Gas at IHS Markit, current projects will launch a “new phase of development” in the industry, with a potential growth in demand from 320 million tons in 2018 to 465 million tons by the mid 2020s and even exceed 630 million tons by the mid 2030s.
Kicking off the FID waltz were Exxon and Qatar Petroleum in February with the development of the Texas Golden Pass LNG export project to Sabine Pass, with investments of over $10 billion. FIDs continued with Anadarko announcing the final investment decisions for the Area 1 project in Mozambique LNG, the country’s first onshore liquefied gas development that will initially consist of two trains with a total capacity of 12.88 million tons per year (mtpa) in which Saipem participates. Area 1, as well as Mozambique’s Area 4 project, which should receive the FID from Exxon by the end of the year, can make Africa a leader in greenfield LNG investments this year, with 28% of all approved investments in recently authorized projects.
Area 1 is the third largest LNG project in terms of greenfield investments this year. The Russian project Artic Lng and the Qatargas project are at the top of the ranking, but they have yet to receive the FID. According to estimates by Rystad Energy, Arctic LNG and Qatargas LNG will have investments of $25.75 billion and $17.5 billion respectively. Moreover, Novatek, which supports the Russian project, announced that it has completed the structure of the project participants.
The growth of the LNG market continues to be supported by the structural shift towards natural gas as an energy transition fuel, helping to meet the growing demand for energy while reducing greenhouse gases.
One of the biggest concerns among analysts about the new wave of LNG projects is the fear that the industry may repeat the cost overruns and delays of the first wave of LNG boom, said Simon Flowers, Chief Analyst and President of Wood Mackenzie. In the previous phase, cost overruns averaged 33 percent, with Australian projects costing as much as 40 percent, wrote Giles Farrer, Director of Research, Global Gas and LNG Supply at Wood Mackenzie. In the actual unbalanced market a bird-eye on what will happen in the next months could save a lot of resources for the developers and let go on the current projects.