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Energy firms slash over $50bn in CAPEX, delay in LNG FIDs could limit liquefaction capacity

Energy firms slash over $50bn in CAPEX, delay in LNG FIDs could limit liquefaction capacity

 

In response to the market downturn and to minimise the impact of the rapid decline in global oil and gas prices, a large number of oil and gas producers of all sizes have announced radical cost-cutting policies on their capital and operational expenditures (CAPEX and OPEX).

Citing global data, the Doha-based Gas Exporting Countries Forum (GECF), which consistently monitors and assesses the market dynamics, revealed that over $50bn in capital expenditure are being slashed by oil and gas companies until the end of March 2020.  North American E&P companies plan to reduce spending in 2020 by 36 percent or $24.4bn relative to 2019 levels, Dr. Hussein Moghaddam, Senior Energy Forecast Analyst, GECF said in his latest research note.

Among recent expense reductions, giant companies such as BP, Chevron, ConocoPhillips, Eni, Equinor, ExxonMobil, OMV, Petrobras, Schlumberger, Shell, Total, and Woodside have announced budget cuts by up to 30 percent.

Investment decisions and economics of LNG projects across the world would be affected by declining oil prices since most of the long-term LNG contracts are linked to oil prices. On this matter, thus far the majority of  Final Investment Decisions (FIDs) planned for 2020 and to some extend for 2021, will not take place and hence oil and gas projects that were supposed to start up in 2023-2025 are being delayed, Dr.Hussein said.

Year 2019 was a record year for LNG FIDs, with six projects totalling nearly 71 mtpa in new capacity being approved and sanctioned in the US, Mozambique, Russia and Nigeria, all aiming to come online between 2023 and 2025, reflecting confidence about mid- to long-term LNG demand growth.

About 239 mtpa capacity was planned for taken FIDs in 2020. Mega-LNG projects, including but not limited to Mozambique’s Rovuma (15.2 mtpa), Qatar’s North Field Expansion (49 mtpa), the US Louisiana Driftwood and Lake Charles (27.6 mtpa and 16.45 mtpa), and Texas Rio Grande (27 mtpa) LNG projects, before crash in oil prices were in advanced stages of securing FIDs.

Australian mega-LNG projects have taken the most drastic reduction measures. It is expected that major projects in the country will be pushed back, since it is risky to finance projects without offtake commitments. LNG projects were targeting FIDs worth over $50bn between 2020 and 2025. These include the Pluto expansion and backfill projects such as Browse, Scarborough, Barossa, Equus, Crux and Clio-Acme. Just two Scarborough and Barossa LNG projects, worth a combined $22bn, were targeting FID in 2020. But due to the global economic downturn, Australia’s biggest LNG exporter, Woodside, is postponing FID on its Scarborough Pluto Train 2 and Browse LNG projects.

In addition, Shell and its joint venture partners (Osaka Gas and a unit of Seven Group Holdings) have decided to delay a FID on the Crux gas field project . The project has been awaiting development to supply backfill gas to the Prelude FLNG facility off northwest Australia, which is the world’s biggest FLNG platform.

In the US, Shell is also withdrawing from the three trains – a 16.45 mtpa – of the Lake Charles LNG project in Louisiana. Oil and gas producer Devon Energy also delays its Eagle Ford shale operation in southwest Texas.

ExxonMobil has pushed back for the second time from its plan to take a FID on the Rovuma LNG project , and Qatar Petroleum announced that the company is not scaling back a plan to build six new LNG trains. However, the start of production from its new gas facilities will be postponed until 2025.

Investment delays in LNG projects could limit liquefaction capacity and create a significant shortfall in production levels over the medium-term. LNG demand growth outpaces liquefaction capacity, and delays in project sanctioning will affect the development of LNG regasification infrastructure and LNG to power plant projects, especially in Asia.

According to the GECF Global Gas Model (GGM), global LNG demand reached up to about 355 mt last year, and demand will increase to about 470 mt in 2025. The Asian LNG market is expected to remain the largest regional market. China has imported slightly more than 60 mt LNG in 2019, after Japan with 77.3 mt LNG. In 2025, China and Japan will be importing about 87 mt LNG and 72 mt LNG, respectively.

Source: thepeninsulaqatar.com

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Published: 19-04-2020

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