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April 7, 2020

Fall in oil and gas prices and weak LNG demand impacts upcoming liquefaction projects

The prospect of weak economic outlook due to COVID-19 impact has led to fall in oil and gas prices, and weakening of LNG demand prompting LNG liquefaction terminal developers to revisit their strategies and capex plans for 2020.

By GlobalData Energy

The prospect of weak economic outlook due to COVID-19 impact has led to fall in oil and gas prices, and weakening of LNG demand prompting LNG liquefaction terminal developers to revisit their strategies and capex plans for 2020. This situation could lead to delays in some of the upcoming liquefaction projects around the world – such as delays in construction of projects and postponement of FIDs.

The postponement of FIDs is already in prospect before the outbreak of COVID-19 due to LNG supply glut and weak demand. The fall in gas prices and further weakening of the LNG demand has accelerated the trend. The structural shift of LNG buyers favoring short-term contracts with smaller volumes can also increase the risk of FID delays and project cancellations. LNG developers typically rely on long-term contracts to secure financing for their projects.

Already liquefaction terminal developers have started making similar announcements – projects such as LNG Canada and Tangguh Train 3 in Indonesia are witnessing construction delays. Sempra Energy and Woodside Petroleum have announced FIDs delays for their upcoming liquefaction projects. More companies are expected to follow the suit in the coming days as COVID-19 continues to spread unabated throughout the world.

Some companies have started realigning their 2020 capex plans. ExxonMobil announced that it is considering to significantly reduce its capital expenditure in the short-term, which may impact the FID of giant Rovuma project. Shell also exited from the Lake Charles II project in the US as part of its capex reduction plans.

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