LNG expansion floundering in “perfect storm” with oversupply and low prices
A new report released today by Global Energy Monitor (GEM) reveals a drastically changed landscape for liquefied natural gas (LNG) terminals since GEM’s spring 2019 survey of LNG terminals, due to a combination of overbuilding, low gas prices, pandemic disruptions, protest actions, and growing political opposition based on climate change concerns. The report, based on data from the latest update of GEM’s Global Fossil Infrastructure Tracker, includes the following highlights:
● In the past year the amount of LNG terminal capacity under construction worldwide has more than doubled, with total capital expenditure rising from US$82.8 billion to US$196.1 billion.
● Many pre-construction or in-construction projects are now in serious jeopardy. GEM’s survey reveals at least two dozen projects recently cancelled or currently suffering serious delays in finance or construction. Typically, troubled projects are struggling with a combination of impacts including difficulties acquiring finance, increasingly effective protest, pandemic-related workforce impacts, and souring economics.
● Four of the top five companies developing LNG export terminals are US based. Five of the top six companies developing LNG import terminals are China-based.
● In the past year LNG has suffered major political and financial setbacks. Berkshire Hathaway dropped several billion dollars in financing for Energie Saguenay LNG in Quebec after Canada-wide protests targeting pipelines. Ireland’s new government has pledged to withdraw Shannon LNG from Europe’s Projects of Common Interest list and the European Court of Justice has ruled that the project’s planning permission is invalid, placing its future in serious doubt. Sweden removed Gothenburg LNG from Europe’s Projects of Common Interest list.
● While touted as a “bridge fuel” by proponents, the footprint of a new gas-fired power plant in Europe or Asia burning U.S.-sourced LNG is approximately the same as that of a new coal-fired power plant in the same location due to leakage of methane throughout the gas supply system along with the energy penalty of long-distance shipping of LNG increase the footprint of gas. Expansion of LNG directly contradicts Paris climate goals, which require a 15% decline in gas use by 2030 and a 43% decline by 2040, relative to 2020.
● Due to falling costs of renewable alternatives, the expansion of LNG infrastructure faces questions of long-term financial viability and stranded asset risk.
Read: Total, Siemens Energy work to curb LNG emissions
“LNG was once considered a safe bet for investors,” said Greig Aitken, research analyst at Global Energy Monitor. “Not only was it considered a climate-friendly fuel, but there was substantial governmental support to make sure that these mega-projects—including some of the largest capital sector projects ever built—were shepherded to completion with all the billions they needed. Suddenly, the industry is beset with problems.”
“The smart money like Berkshire Hathaway is pulling back from LNG,” said Ted Nace, executive director of GEM. “LNG’s problems won’t magically disappear with the end of the pandemic. In the power sector, modeling shows that renewable packages are already outcompeting imported gas in South Korea. And every year that goes by, renewables get more competitive.”
GEM’s survey of LNG infrastructure is based on the Global Fossil Infrastructure Tracker (GFIT), a project-by-project census of oil and gas facilities developed by Global Energy Monitor. GFIT uses the same methodology as the Global Coal Plant Tracker (GCPT), a biannual census of coal-fired power plants that is used licensed by Bloomberg Terminals and UBS Research, and used by the IEA, the World Bank, the OECD, UN Development Programme, the Economist, and many others.