Lockdowns and travel restrictions across the globe to contain COVID-19 spread has led to low oil and gas demand and a decline in global energy prices. In response to this, several companies in the Asia Pacific region have realigned their capital spending during the year 2020, which has led to delays in some pipeline and LNG projects in the region. Additionally, reduced LNG imports from some of the key consumers such as Japan, China, India, etc. have further dented the growth of the midstream sector in the region. The rising ambiguity around the current economic scenario is deterring prospective investors. One of the go-to strategies for several LNG operators has been downsizing overall capital expenditure (capex) for 2020. For example, Santos Ltd reduced the total capex by around 37% in 2020 has led to a delay in final investment decisions (FIDs) on the Barossa Gas Export project in Australia. Withdrawing capex plans ensured that these companies had sufficient working capital, but it might dent their profitability in the long run.
Major pipeline and LNG operators have reported that their financial performances have been hit in 2020 when compared to that in 2019. Consequently, midstream operators such as Royal Dutch Shell Plc, Total SE, and BP Plc have all reduced their capex in excess of 20% to ensure steady cash flows.
The sector has undergone significant losses, pushing companies to take desperate measures such as reducing capex or delaying FIDs. However, on the brighter side, the Global LNG supply glut along with low LNG prices would encourage new countries such as Myanmar, Vietnam, and Sri Lanka to speed up LNG importing infrastructure. These new entrants would likely contribute to future LNG industry growth in the Asia Pacific.