LNG imports by the world’s top three consumers, Japan, China and South Korea, and other Asia-Pacific countries such as India, have taken a hit due to the reduced demand and economic slowdown fuelled by the Covid-19 outbreak. This has led to long-term LNG supply contract re-negotiations and cargo deferments by importing countries, causing supply overhang and resulting in lower LNG prices.
Low gas prices and the LNG supply glut have impacted LNG producers, who are rethinking their capex spends in upcoming multi-billion dollar gas projects. Woodside decided to cut down its capex spending for the year 2020, which led to the delay in the FID of Pluto LNG Train 2 project in Australia. The expansion of PNG LNG plant in Papua New, operated by Exxon Mobil PNG, is likely to be delayed due to failed negotiations with the government and current market conditions.
Similarly, the FID of the Barossa gas project, which will backfill the Darwin LNG, has been delayed due to low oil prices combined with the Covid-19 pandemic. This also translates to the delay in the project start year as well, by a year. On the brighter side, despite reducing the workforce to stem the spread of the virus, Tangguh Train 3 (operated by BP Berau) is likely to be finished on schedule, as the project is nearing the end of construction.
Global lockdown resulting in LNG cargo cancellations and leading LNG producers limiting their LNG production could be the short-term impact on this sector. In the long-term, the emergence of new LNG importers such as Vietnam and the Philippines among others can be seen, creating a bigger market in the Asia-Pacific region for global suppliers. LNG is also expected to play a major role in the energy transition from coal to gas in the region.