News wire – No new liquefied natural gas, LNG, export projects could be approved this year for the first time in at least two decades, banking and industry sources said, after the COVID-19 pandemic drove down energy demand and knocked prices to all-time lows.
In a stark contrast to last year’s record level of approvals for LNG production plants, 2020’s dramatic oil and gas price drop has forced companies to delay decisions on new projects and write down investments in existing plants.
The last year in which no new LNG exports plants were approved was 1998, consultancy Wood Mackenzie told Reuters, while the International Energy Agency estimated it was at least two decades ago.
Five investment banking and energy analysts said they expect no final investment decisions (FIDs) this year, while four other sources said they expect at most one to two.
Prior to the coronavirus pandemic, the volume of new export capacity sanctioned in 2020 was expected to be similar to last year’s record of over 70 million tonnes per year.
“We do not expect any major FIDs on LNG export projects this year,” Morgan Stanley’s lead commodity strategist for natural gas and power Devin McDermott said.
“With coronavirus reducing oil demand and prices, majors’ capital spending dropped, weighing on their investment and pushing out FIDs.”
Giovanni Bruni and Alessandro Agosta, partners at McKinsey & Company, said they expect all pre-FID projects to be delayed by 1 to 2 years due to CAPEX cuts and deferrals, plus difficulty in securing buyers.
Most industry sources and analysts said the only project with a chance of receiving an FID this year is the Costa Azul export plant in Mexico, developed by U.S.-based Sempra Energy.
The outlook elsewhere in North America is much darker.
A record flow of investments in new projects last year by majors or companies with big LNG portfolios disadvantaged those proposed by smaller companies, which need contracts with buyers before being sanctioned.