On Wednesday (Sept. 3) Edinburgh-based energy consultancy firm Wood Mackenzie did its best to worry proponents of liquefied natural gas export projects.
In a press release titled, “Wood Mackenzie asks where are all the LNG project postponements?”, the company made the case that a slowdown in global demand means there is no need for the 100 million tonnes of LNG per year that is scheduled to be sanctioned over the next six to 18 months.
Wood Mackenzie’s opinion should interest those who follow the industry in Atlantic Canada. There are currently four LNG export projects being proposed for the region.
The company is the latest to pooh-pooh the thought of an LNG gold rush in Atlantic Canada or elsewhere. This spring, Moody’s Investor’s Service said it didn’t think any of the four Atlantic Canadian projects would get built.
Wood Mackenzie’s dim view of the global LNG market beyond 2017 comes from the fact that demand in the Asia – particularly China – is dying down significantly.
Noel Tomnay, Wood MacKenzie’s vice-president global gas and LNG research, had this to say about the situation in the press release:
China’s LNG import commitments are set to rise by 17% year-on-year (yoy) between 2015 and 2020, from 20 to 41 mmtpa but China will struggle to take all this LNG so quickly. In contrast, China’s LNG imports fell by almost 4% yoy in the first half of 2015, as a consequence of subdued industrial output and fuel competition, which was driven by relatively low priced oil.
Here is more from Tomnay:
The outlook for longer term incremental LNG demand growth in China is also being negatively affected. And with lower industrial output and power generation competition increasingly characterising other key Asian LNG markets, like South Korea, Asian buyers are not in a hurry to finalise new LNG contracts.
Wood McKenzie says that while 50 million tonnes per year of LNG from projects based in the United States, and a further 50 million tonnes per year from outside the U.S., are set to be sanctioned in the next six to 18 months, the market will be oversupplied and doesn’t need it all.
As a result, Wood McKenzie expects a “raft of project postponements.”
This matters in Atlantic Canada because at least two of the four proposed projects in Atlantic Canada – Pieridae Energy’s Goldboro LNG project, and Bear Head LNG, are both saying they plan to make a final investment decision during the 2015-2016 timeframe and have their projects operating by 2019-2020.
But Wood MacKenzie says that LNG isn’t going to be needed. So what gives?
Both projects have been touting the regulatory progress they’ve made in recent weeks, and they also say the LNG markets they are going after are in Europe and India, not necessarily China, South Korea and Japan.
It’s possible European and Indian markets might need more LNG (and be willing to pay more for it) than China and South Korea. In fact, Pieridae already has a 20-year contract signed with Germany’s E.ON Global Commodities SE to supply it with five million tonnes of LNG per year.
However, that LNG export projects in Atlantic Canada can be economic enough to be built goes against conventional thinking among the people paid to analyze the global LNG market.
And the chorus of naysayers seems to be getting louder all the time.