Rystad Energy: Exploration & Production Newsletter - October 2019 - eng

Четверг, 03 октября 2019 11:08

North America to drive global LNG supply growth

Following flattish development during the downturn, global LNG production is expected to expand in the mid- to long-term, reaching 455 million tpa by 2025. North America is anticipated to display the highest growth in terms of production and investments going forward with multiple projects coming online by 2025. This article assesses the outlook for global LNG, illustrated by three key drivers: supply, breakeven prices for new projects and capital investments.

Figure 1 shows global LNG production split by region, from 2010 to 2025. In 2018, there was 321 million tpa of LNG produced, an increase of 12% relative to 2017. In order to keep up with increasing LNG demand, global production is expected to continue to grow going forward, hitting 455 million tpa by 2025. Around 65% of the future LNG volumes will come from sanctioned projects, which includes increasing volumes from the US and Australia. As of today, Middle East is the largest supplier of LNG with Qatar being the biggest contributor to nearly 100 million tpa supplied by the region each year. North America, however, is anticipated to replace Middle East as the largest LNG producer by 2025. With nearly inexistent LNG supplies before 2017, United States is actively ramping up output on its key LNG projects, including Sabine Pass, Freeport, and Corpus Christi. Over the next three years, the US will add ~35 million tpa of LNG supply, as projects start operations, and is set to flood the market with flexible volumes. The majority of US supply is contracted by portfolio players or traders, with the purpose of reselling the volumes. In addition to the US ramp up, Australia’s Ichthys and Prelude projects are expected to reach full capacity next year bringing total Australian supply to about 80 million tpa. Russia is also emerging as an important LNG supplier with top companies aspiring to take a share in global LNG market. Novatek’s operated Yamal LNG project is reaching full capacity in 2019-2020 and several new projects, such as Arctic LNG 2, are anticipated to begin service in the next five years. Total Russian output is thus expected to reach about 30 million tpa by 2025, with Russia entering the top 5 global LNG producers.

Figure 2 shows breakeven prices for the top upcoming LNG projects expected to be sanctioned in the next three years. On August 19th this year, Venture Global took the final investment decision on the $5.8 billion Calcasieu Pass project in Louisiana, United States. Area 1 LNG in Mozambique was sanctioned by Anadarko in June 2019, and has an estimated breakeven price of 5.5 USD/MMBtu. The first train of Woodfibre LNG in Canada, as well as Mozambique’s Area 4 (Rovuma) and Russia’s Arctic LNG 2 are also expected to reach FID this year. These projects are expected to break even at 6 – 6.4 USD/MMBtu. In the next two years we expect to see the sanctioning of Driftwood LNG and Freeport LNG Train 4 in the United States, as well as Papua LNG, Pluto LNG Train 2 and QatarGas LNG Trains 8-11. QatarGas LNG has the lowest breakeven price among the top upcoming projects, at 4.5 USD/MMBtu. On the other hand, Papua LNG, with an estimated breakeven of over 8 USD/MMBtu, is one of the more expensive projects, which combined with the political uncertainty surrounding the project could mean sanctioning delays. Along with Mozambique, the United States dominates the new LNG project list, and is positioning itself for a significant LNG export growth as the Federal Energy Regulatory Commission (FERC) has this year reached a new record in approvals of US LNG export projects. 

Figure 3 depicts total capital investments into LNG developments by life cycle of the projects included. Global LNG capital expenditures were increasing sharply from 2010 and peaked in 2014 at over $40 billion. Following the oil price collapse, investments were falling by 14% CAGR in 2015-2018, particularly driven by reductions in Australia. As Gorgon, Australia Pacific and other major projects neared completion, the country significantly reduced influx of capex into new developments. Thus spending was decreased by more than 80% since 2014. At the same time, North American projects saw the largest injection of capital during the downturn. This region is also forecasted to exhibit the largest growth in spending in the future, directed to new unsanctioned projects. Among these, Driftwood LNG is the largest development, which will see an average of around $2.5 billion invested yearly in 2021-2025. Currently, active investment is going into sanctioned, but not yet producing projects, including Freeport LNG, estimated to start-up later this year, LNG Canada, and Golden Pass. Similarly, LNG investments in Russia are set to pick-up again after the decrease of 2016-2019 that followed after the completion of Yamal LNG. Arctic LNG 2 project, the second Novatek operated project to be developed, will be the first to come online by 2025. The construction phase is planned to start already this year, leading to a substantial increase in spending in the following years. Globally, LNG capital investments are now forecasted to reach 2014 levels again by 2025. 

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Global LNG production and investments are expected to grow in the medium to longer term, led by recently sanctioned and upcoming projects in North America. Multiple LNG projects in the United States, as well as Canada, are planned to be commissioned by 2025, including Driftwood LNG and the fourth train of Freeport LNG. The sanctioning of QatarGas LNG Trains 8-11 and Russia’s Arctic LNG 2 is further expected to boost global LNG supply post 2025. 

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