The Strategist

USA is slowing down LNG production due to low prices

06/25/2020 - 07:07

American gas liquefying projects are massively postponing commissioning of new capacities amid falling world prices, which is why their growth in 2021–2022 may become minimal. According to Platts, it is possible that in the coming years not a single investment decision will be made on new LNG projects in North America.

The operator of the American LNG project Freeport LNG postponed adoption of an investment decision on the fourth stage of the plant at 5 million tons per year for at least a year, until 2021. This announcement was the next in a series of similar ones this year and casts doubt on the former plans of American exporters to aggressively build up their market share.

Currently, there are six LNG plants in the USA - Sabine Pass, Cove Point, Corpus Christi, Cameron, Elba Island and Freeport, the total capacity of which currently reaches 55 million tons per year. By the end of the year, it is expected to launch one new line at Cameron (4.5 million tons) and three - at Elba Island (0.75 million), which will bring the total capacity of American LNG plants to 60 million tons.

However, in 2021, it is expected to commission only one new line - at Corpus Christi at 4.5 million tons. As for 2022, Venture Global in 2019 formally made an investment decision on the Calcasieu Pass project for 10 million tons, which should be launched at the end of 2022. However, given the market situation, the deadlines may be rescheduled.

Thus, in the next two years, US LNG export capacities will almost cease to grow.

Moreover, according to a Platts Analytics review, it is highly likely that in the next five to six years not a single new North American LNG project will be able to make an investment decision, given the long period of low gas prices in the world and the difficulties in concluding long-term contracts. “We think that this forecast will most likely come true,” a chief analyst for the American LNG market, said during a webinar on June 23. As of March, the total capacity of LNG projects in the USA, which received regulatory approval for construction and export, was 158 million tons.

American projects are under strong pressure due to falling prices in export markets in Europe and Asia to the level of $ 2 per MBTU (about $ 70 per 1,000 cubic meters), which is only slightly higher than the prices on the US domestic market. In June, according to the US Department of Energy, gas supplies to liquefaction plants fell 2.5 times compared with March to less than 110 million cubic meters per day: buyers are massively refusing cargo because the export economy has become deeply negative. According to the US Department of Energy, in June-July, buyers refused 70 cargo. According to Platts estimates, between April and August, the number amounted to 130 cargoes.