Oil Crash is Help and Hazard for LNG Export Projects

Oil’s rout may have been an unexpected boon for the biggest buyers of liquefied natural gas, but its knock-on effects may come back to bite them.

That is because more than a dozen proposed LNG export projects from the US to Mozambique are at risk of being delayed or scrapped as crude careened to levels that make most of them unprofitable. If fewer of them come to fruition, that would ease a widening LNG supply glut later this decade and potentially lift prices amid breakneck demand growth in Asia, Bloomberg reported.

The multibillion-dollar export terminals typically sell their output at a price linked to crude. While projects are financed based on long-term models, because they take years to build and then operate for decades, if oil and gas prices stay at current levels throughout the year, it could force backers and financial institutions to rethink their plans.

Almost 20 proposed export plants are vying for a shrinking pool of capital after a record number of terminals reached final investment decisions last year. Even before crude’s drop, developers were under pressure from a slump in global gas prices, milder winter temperatures and demand restraints from the coronavirus.

Most developers are looking to sell LNG at $8 per million British thermal units, which has become difficult under market prices.

Brent crude’s forward curve shows oil hitting about $55 per barrel by 2029, a price level that is not profitable for any of the proposed LNG projects, except for a planned expansion in Qatar.

A crowded field of competing US projects could be the most at risk, as developers had already been struggling to attract buyers amid the ongoing trade war with China, the fastest-growing market for the super-chilled fuel.