Impact of Covid-19 on LNG Sector in the US

GlobalData Energy 24 August 2020 (Last Updated August 24th, 2020 11:09)

Impact of Covid-19 on LNG Sector in the US

Global economic slowdown as an outcome of the Covid-19 pandemic and the resultant measures to curtail its spread has adversely impacted demand for US LNG. Bloated inventories of natural gas in regions such as Europe and Asia, as well as global LNG liquefaction capacity expansions have led to surplus global LNG supply. Additionally, low LNG prices, long-term LNG supply contract cancellations, and cargo deferments by importing counties are likely to upset demand for LNG produced in the US in the near term.

LNG companies are facing significant challenges in the form of fluctuating demand for natural gas and lack of financial sustenance forcing them to restructure their strategies around multi-billion-dollar gas projects. Tellurian has delayed the financial investment decision (FID) of its Driftwood project by a year to 2021, as it failed to secure an investment partner. NextDecade Corp has also resorted to a similar approach by delaying the FID on its Rio Grande LNG terminal pushing the investment decision by a year.

LNG exports from the US witnessed an overall declining trend during the period Jan –Jun 2020. It was mainly due to low LNG prices and LNG contract terminations in the wake of the Covid-19 pandemic. According to Energy Information Administration (EIA), capacity utilisation at Sabine Pass, Corpus Christi, and Freeport terminals averaged 33%, 28%, and 6% respectively, in July 2020. EIA estimates that about 46 cargoes were cancelled in June 2020 and about 50 cargoes were cancelled the following month, hugely hitting the liquefaction capacity utilisation in the US.

Even though the economic outlook showed glimpses of recovery, the sporadic nature of the pandemic was weighing down the growth prospects of the LNG sector in the country. Moreover, EIA forecasts that the utilisation of LNG liquefaction facilities in the US would average around 35% in the coming months when seasonal LNG demand tends to be low.