OPINION: All eyes were on the oil price this week as West Texas Intermediate blend plunged below the US$20 per barrel mark and reached an 18-year low.
But Covid-19 and the Saudi-Russia oil price war are going to have a similarly severe impact on the liquefied natural gas sector.
Amid falling investment confidence, there are growing expectations that a swath of new LNG projects will be delayed or scrapped.
The developer of the Woodfibre LNG export project in British Columbia, Canada has set back the start of construction to next year, while the ExxonMobil-led Rovuma project in Mozambique and Papua New Guinea LNG expansion are also expected to be delayed.
Consultancy Wood Mackenzie has warned that a second wave of gas export schemes in Australia is likely to be stalled for a while.
Major local operators Woodside and Santos were meant to approve US$15.7 billion worth of LNG investments this year.
Santos has already said it expects its Barossa scheme to be deferred amid a 38% capex cut in 2020.
Woodside has delayed its Scarborough project and Pluto Train 2 expansion until 2021.
It had already pushed back sanctioning its Browse project until the end of 2021 and has said it is likely to revise its plans for the development to include some form of sequestration.
Australia overtook Qatar in 2019 as the biggest LNG exporter in the world, shipping out roughly 77 million tonnes of gas, worth a record A$51 billion.
Demand for gas has risen sharply in recent years as countries such as China have seen it as a cleaner fuel than coal for power plants.
The reality was that there were already too many LNG projects lined up to meet expected demand.
There was a 4.6% increase in gas consumption in 2018 alone, according to the International Energy Agency, which predicts lower demand increases in the years ahead.
The US has also been using more gas, taking advantage of the enormous growth in domestic shale output.
Permission to start exports led to plans for several new LNG projects in the US, which slowed amid oversupply fears.
The atmosphere in the US gas export sector was further dampened in 2019 by the trade war with China.
Madeline Jowdy, senior director of LNG for S&P Global Platts, described the latest oil price collapse as “the nail in the coffin” for some US LNG projects.
Cheniere Energy, which pioneered the new US gas shipping boom, admitted it would be harder to finalise contracts to expand its Texas export terminal.
Shell is ditching its 50% equity stake in the planned Lake Charles LNG export project in Louisiana, citing a soft global market.
In Australia, staff have been reduced at all the country's LNG projects due to Covid-19 and the need for social distancing.
But Shell had already reduced staff on its Prelude floating LNG facility off Australia after an electrical fault led to production being shut in last month, before the pandemic spread there.
The pandemic and the decision by Saudi Arabia and Russia to increase oil production have forced energy companies to reassess their spending.
Rystad Energy, the Norwegian consultancy, predicts US$100 billion worth of cuts in oil and gas spending across 2020 with US$65 billion of that in the US shale sector.
The reality was that there were already too many LNG projects lined up to meet expected demand. Banks will surely be tighter with lending in the future.
(This is an Upstream opinion article.)