The impact of falling oil and gas prices on non-US LNG producers

摘要

In conclusion, it is no surprise that all LNG producers have been significantly affected by the decline in the oil price. Worst hit have been those companies with greenfield projects yet to take FID decisions, many of which are now likely to be postponed for at least two to three years. Although the owners of brownfield sites and new projects about to come on stream have also been hit, their competitive position is stronger as costs have already been sunk, with the result that the point-forward economic prospects are more robust, as long as the project sponsors can still afford the financing costs. For those that cannot, consolidation or asset sales will be the likely outcome. From a pricing perspective, two other outcomes are worth noting. Firstly, any un-contracted output from projects already in production or set to come on stream will put further pressure on an already saturated market. And secondly, the pressure from consumers to shift away from oil-linked contracts is likely to recede for a time; nevertheless the new lower oil price environment (combined with the convergence of global LNG spot prices on a netback basis across Europe, Asia, and the USA) could continue to catalyse a debate about the future of price formation mechanisms in LNG contracts. Indeed consensus between consumers and producers on a hybrid formula based on a basket of oil and market prices may now be achievable given the closing of the disparity between the various alternatives.