Low oil may thwart LNG plans in 2016

OREANDA-NEWS. December 25, 2015.  At least 14 North American LNG export projects are targeting final investment decisions (FIDs) in 2016 to allow them come online in 2020-21, when global LNG demand is expected to increase.

But benchmark crude prices at 11-year lows could thwart many of those plans, because the economics of US LNG projects are based on a wide differential between domestic gas and global oil prices. Most Canadian projects would have contracts linked to oil prices.

Another major development in 2016 will be the start of the first significant US exports, from Cheniere Energy's Sabine Pass LNG terminal in Louisiana. Cheniere is building five liquefaction trains at Sabine Pass, each with peak capacity of 5mn t/yr, equivalent to 690mn cf/d (19.5mn m?d) of gas.

Train 1 is scheduled its first test cargo in early 2016 and start commercial operations in March 2016. Trains 2-5 are scheduled to come on line successively from June 2016 to December 2018, so Sabine Pass likely will have peak capacity of 10mn t/yr by mid-2016.

Five LNG export projects are being built in the US, but Sabine Pass has at least a two-year head start on the others because of regulatory delays after it received all its approvals.

At least 10 other major US projects are targeting FIDs this year. Those are Sabine Pass train 6, Cameron LNG train 4, Magnolia LNG and Lake Charles LNG, all in Louisiana; Corpus Christi LNG train 3, Golden Pass and Freeport train 4; Jordan Cove in Oregon; Elba Island in Georgia; and Delfin LNG offshore Louisiana.

But low oil prices could delay many of those projects, as the economics of US exports are based on a wide differential between domestic gas prices and global oil prices, in energy equivalent units. Many experts have said that oil prices would need to be at least \\$60-\\$70/bl to make US exports competitive with oil-indexed supplies from other nations.

Dozens of export projects have been proposed in Canada, but none has yet made an FID because of competition from cheaper US projects and low oil prices.

Two major projects in the western Canadian province of British Columbia have said they plan to make FIDs in 2016. Those are the Petronas-led Pacific NorthWest terminal and the Shell-led LNG Canada project. Pacific NorthWest faces opposition from a First Nations group and expects a ruling in early 2016 on a federal environmental permit.

Two smaller projects in western Canada – Woodfibre LNG and Cedar LNG – also are targeting FIDs this year.

In addition, two projects along Canada's eastern seaboard plan to make FIDs this year. Those are Goldboro LNG and Bear Head LNG, both in Nova Scotia.