Energy sector analyst Wood Mackenzie has declared the liquefied natural gas (LNG) boom is back, with a prediction that more than $US200 billion will be invested in the sector over the next six years.
Energy sector analyst Wood Mackenzie has declared the liquefied natural gas (LNG) boom is back, with a prediction that more than $US200 billion will be invested in the sector over the next six years.
It expects almost 90 million tonnes per annum (mmtpa) of LNG is expected to take a final investment decision (FID) and start construction over the next two years.
That far exceeds the total volume of Australia's LNG exports, which reached 69.5mt in 2018, according to EnergyQuest.
Projects likely to get the go-ahead over the next year include two operated by Woodside Petroleum.
The $A15 billion Scarborough development will bring one of WA’s most remote gas fields into production and underpin construction of a second LNG processing train at the Pluto plant.
The A$21 billion Browse project will see gas piped from off the Kimberley coast to the North West Shelf venture’s Karratha gas plant, ensuring long-term supply for that facility.
Woodside is also a shareholder in the Chevron-led Kitimat LNG project in Canada.
Numerous other LNG projects are being assessed, in locations as diverse as Qatar, the United States, Mozambique and Papua New Guinea.
Wood Mackenzie said the anticipated capital expenditure would be for both LNG plant and upstream infrastructure and provide a major boost to engineering, procurement and construction (EPC) contractors.
It cautioned the LNG industry is notorious for cost overruns and project delays.
Just 10 per cent of all LNG projects have been constructed under budget, while 60 per cent have experienced delays.
Recent projects that have suffered cost blow-outs and delays include Ichthys near Darwin, and Cameron and Freeport in the US.
Liam Kelleher, senior global LNG research analyst, said: “The many projects jostling for FID right now have low headline costs, but in light of the historical reality of LNG construction, some project delays are likely”.
“While there is a risk that current low LNG prices may see some proposed projects cancelled, Wood Mackenzie believes the risk to new LNG supply development is low and we see considerable upside supply potential.”
Wood Mackenzie’s ‘high’ case anticipates a further 70 million tonnes per annum could be sanctioned in the next three years.
“Should even some of this materialise, construction would be stretched beyond the height of the 2010-14 boom,” Mr Kelleher said.
“But that does not mean the upcoming cycle is destined to be a replay of the last.”
Mr Kelleher pointed to a number of key differences this time round.
“Firstly, the global spread of projects will mean that the local inflation pressure, particularly in terms of manpower, which hit Australia and the US in previous cycles, is lessened.
“Secondly, developers are also being more cautious about LNG development solutions, opting for modularisation and capex phasing. This, coupled with renewed caution with investment programmes across the upstream sector, should help limit global upstream inflation.”
Lower raw materials costs should also help keep a cap on expenditure, as global steel prices are set to ease from their 2018 peak.
He added that new players entering the EPC market mean that competition for construction contracts is strong.
