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LNG suppliers move towards strategic projects with smaller price tags

The ‘new norm’ is affecting the energy industry across the board, and natural gas export companies are also having to make adjustments to business decisions.

Large liquefied natural gas facilities are no longer feasible projects. There haven’t been any large-scale developments since 2014. Malaysia’s state-run Petronas pulled out of a $27 billion project last week, and LNG Canada’s future facility is on hold until at least 2019.

The global glut doesn’t look to be going away anytime soon, and as a consequence, prices for liquefied natural gas will remain low. “Global LNG supply is forecast to exceed demand by 48% in 2020,” said Anastacia Dialynas, an analyst from the New York-based Bloomberg New Energy Finance. She also predicts the glut will stick around until at least 2026.

This is forcing suppliers to build smaller and more strategic facilities to stay competitive.

Cheniere Energy Inc. and Tellurian Inc. look to build terminals roughly a third of the size and a fraction of the cost of most current facilities. New markets in the Middle East, Latin America, and Asia are now preferring intermittent and smaller batches of natural gas for heating fuel. These smaller terminals are a much more economical way for natural gas suppliers to fill that niche.

Other similar smaller ventures include Ophir Energy Plc’s plan to begin construction on Fortuna LNG, which will be a small floating facility of the coast of Equatorial Guinea.  Two other projects that come in under $10 billion to build are Coral LNG in Mozambique and Woodfibre LNG in Canada.

The head of global gas and power at PIRA Energy out of New York, Ira Joseph, commented on Petronas’s decision to ax their plans for a Canadian facility as, “a reflection of the world that we are in. The market is already crowded with projects, demand is more fragmented, and there are smaller types of buyers that need smaller sellers.”

Offshore facilities are also looking to be a cost-effective option. Petronas built a small-scale floating terminal that started producing liquefied natural gas in April. Royal Dutch Shell Plc is working on a similar facility off the coast of Australia that should come online next year.

Modular-style facilities that consist of smaller separate units are being looked into by some major players, but some industry experts have their doubts about the overall efficiencies of the modular concept.

Sveinung Stohle, the chief executive officer of Hoegh LNG Holdings Ltd., commented, “You need to come to the market with a solution that can cost-wise compete in a market where the price is $5 to $6. It’s become a buyer’s market. All the big sellers have to also work on smaller markets that they previously said no to.”

So, either way, building smaller facilities is the wave of the future and will better serve smaller orders – under a half a million tons a year – coming from customers like Huadian Power International Corp. and Beijing Gas Group Co. in China.

Article written by HEI contributor Raymond Arrasmith.

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