$283B of Planned LNG Projects May Not be Needed

by | Jul 8, 2015

A global gas study released July 7 by the London-based independent advocacy group, Carbon Tracker Initiative (CTI) identifies $283 billion of possible liquefied natural gas (LNG) projects through 2025 that are likely to result in oversupply or surplus during a low-demand scenario. Indeed, the findings suggest that 16 of the world’s 20 biggest LNG companies are considering future major projects that are unlikely to be needed to meet demand by 2025.

The report, “Carbon Supply Cost Curves: Evaluating Financial Risk to Gas Capital Expenditures,” indicates that there is some room for gas demand growth through 2040 – unlike coal and oil usage, which “must peak and decline.” However, “if the world is to stay within a carbon budget that limits global warming to the 2°C/35.6 °F United Nations target, energy companies will need to be selective [about] which gas projects they develop,” according to CTI.

The study finds that, over the next ten years, in the lower-demand scenario:

  • $82 billion of potential capital expenses in LNG plants will not be needed in Canada;
  • $71 billion will not be needed in the United States; and
  • $68 billion will not be needed in Australia in the lower demand scenario.

The value of unneeded LNG projects rises to $379 billion by 2035.

“Investors should scrutinize the true potential for growth of LNG businesses over the next decade. The current oversupply of LNG means there is already a pipeline of projects waiting to come on stream. It is not clear whether these will be needed and generate value for shareholders,” said CTI Head of Research James Leaton.

The analysis, which completes the think-tank’s series of “Carbon Supply Cost Curves,” follows a similar approach to the oil and coal studies published last year that identify high-carbon, high-cost projects for investors. It finds that new projects that rely on an LNG price of more than $10/million British Thermal Units (BTUs) may not be needed over the next decade.

“The size of the gas industry in North America could fall short of industry projections – especially those expecting new LNG industries in the United States and Canada. Avoiding the combination of US shale gas being exported as LNG will be important if we are to use the carbon budget most efficiently,” said Andrew Grant, lead analyst at CTI and co-author of the report.”

The study indicates that there is “a perfect storm” of factors in play to cause a rapid transition to a low-carbon energy system. Cheaper renewables, stronger energy efficiency measures, new storage technologies, higher carbon prices and fluctuating energy prices will all influence global gas demand. As renewables costs come down, some regions are likely to leapfrog over gas straight to renewables.

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