Primary Author: Mitchell Beer @mitchellbeer

The bottom is falling out of a heavily-hyped boom in liquefied natural gas (LNG) development, as cost overruns, project delays, climate concerns, and security worries for one major megaproject drive down investor confidence that seemed unbeatable as recently as two years ago, according to a new analysis by Global Energy Monitor.

The report by GEM Research Analyst Lydia Plante and Executive Director Ted Nace is the latest but by no means the only sign that a vibrant global LNG trade hyped by politicians and developers from British Columbia to the United States, and from Qatar to Mozambique, is losing much of its momentum.

“LNG was sold to policy-makers and to investors as a safe, clean, secure bet,” said Plante, the report’s lead author. “Now all those attributes have turned into liabilities. The sheer size of the projects has exposed investors to catastrophic losses. And the recent IEA 2050 scenarios show that LNG has no place in a climate-safe energy future. The industry has lost its climate halo, and the only question is whether the Biden administration will waste precious political capital propping up potential white elephant projects.”

In their report [pdf], Plante and Nace write that LNG terminals “are among the largest capital projects ever attempted in modern industry, including some projects costing over US$30 billion.” And “at that scale, a project can appear unstoppable, especially when backed by multiple governments.”

But “big money is also nervous money, and the go-go atmosphere that characterized the LNG sector just two years ago now lies in what seems like the distant past. This is particularly true in North America, which leads the world in LNG export expansion plans.”

LNG is already considered “infamous” for project delays and cost “blowouts,” GEM writes, with one survey concluding that only 10% of projects had been completed under budget, while 60% experienced delays—all of which would have tended to drive up costs. In the last year, “the cost overruns, scheduling delays, and high outage rates that plagued the LNG sector were further exacerbated” by the work force disruptions brought on by COVID-19 pandemic.

Which helped explain why at least 21 LNG terminals totalling 265 million tonnes per annum (MPTA) of LNG capacity—38% of the export capacity now under development around the world—reported delayed investment decisions or other major disruptions, GEM states. The survey found that North America, with 64% of the global export capacity now in construction or pre-construction, “also has the most troubled projects,” with 10 out of 18 reporting delays in final investment decisions (FID).

The report points to three bigger-picture issues that may be giving investors pause.

• After an insurgent attack on a nearby town, French colossal fossil Total SA “shocked the world” when it announced force majeure—contract language for circumstances outside a party’s reasonable ability to control—in its $20-billion LNG terminal under construction in Mozambique. “What makes the Mozambique crisis particularly significant is that LNG itself has long been sold as a solution to energy insecurity,” GEM writes. “But even before the Mozambique crisis, the vulnerability of LNG to supply chain disruption had raised questions about its value as a provider of energy security.”

• Particularly for North American projects, “simple delays have swelled into existential threats”, with lower-cost producers in Qatar and Russia planning major capacity increases. But with renewable energy prices on track to fall another 43 to 55% between 2019 and 2030, according to the International Renewable Energy Agency, the larger price pressure comes from outside the fossil sector.

“With coal-to-gas switching in the power sector the lead driver of gas demand increase,” GEM states, “every year of delay that an LNG project experiences means an even tougher competitive environment against renewables, and raises the probability that the project could become obsolete decades before the end of its intended lifespan.”

• For years, LNG developers have pitched their projects with the argument that burning gas produces about half as much carbon dioxide as coal. But GEM says climate concerns have already led investors to abandon some LNG projects, and the International Energy Agency’s blockbuster projection that “no new natural gas fields are needed” in its Net Zero by 2050 scenario means a tougher road for the industry.

LNG Terminal

But “despite the rise in delays in development of LNG export capacity,” GEM writes in a release, “global LNG import capacity continues on an aggressive expansion path, with enough projects in construction or pre-construction to increase global capacity by 70%. Of the capacity in construction or pre-construction, 32% is in China, 11% is in India, and 7% is in Thailand. Outside Asia, Brazil is a hotspot, with 13 LNG import terminals in construction or pre-construction.”

While Global Energy Monitor is the latest to document the LNG industry’s deepening problems, the International Gas Union (IGU) was in the news less than a month ago, admitting that most of the new LNG projects on the drawing boards—one-quarter of them in Canada—are unlikely ever to built. The Financial Post called that a measure that investors were falling “out of love” with the industry.

The IGU estimated that 892.4 MBTA of “aspirational” new LNG capacity awaited investment decisions, enough to triple global capacity that now stands at 452.9 MBTA. “However, a large portion of the pre-FID projects are likely not to progress,” the IGU said. “Given the weak economic landscape in 2020, developers have pushed back on capital-intensive pre-FID liquefaction projects,” though smaller projects are more likely to proceed.