"As a result of reduced industrial and commercial activity, LNG buyers have been scaling down orders and in cases refusing cargoes invoking force majeure. Buyers in Asia and Europe have cancelled about 20 US LNG cargoes for June loading. Prices are now at a level that threatens the economics of not just new projects, but also existing gas production, with some liquefaction plants having to shut-in production – especially in the US.
Prices are now so low, around $2/mmbtu, that US LNG exporters are trading at less than half breakeven levels, weakening their position. With oil prices staying low, oil-indexed LNG prices will also stay low. And with new, and already sanctioned, liquefaction projects continuing to come into the market until 2027, the pressure on prices is expected to continue.
Demand for LNG may remain more or less flat, but it is very difficult to forecast. The International Energy Agency (IEA) estimates that there will be a 5 per cent drop in gas demand in 2020. The biggest problem, though, is increasing LNG production and oversupply – it may take years before this problem fully dissipates.
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But some projects, especially those that are low-cost, are still progressing. Qatar LNG has reconfirmed its plans to expand its liquefaction capacity by 30mtpa by 2025, with another 19mtpa to be added by 2027. This is the world’s cheapest source of LNG.
New LNG export projects, and developers, need to brace themselves for a continued glut as further production is added, outpacing global demand, contributing to prolongation of depressed prices."
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