Save for later Print Download Share LinkedIn Twitter Having been at the forefront of a wave of LNG project sanctions during 2019 and early 2020, the Covid crisis caused the Western majors to pause for thought. By May this year, it was clear that they had begun to ease off the accelerator pedal in their drive to position themselves to take advantage of what they see as LNG’s strong prospects over the long term (EIF May20'20). At that time, the three majors most keen on building globally diversified portfolios -- Royal Dutch Shell, Total and Exxon Mobil -- had delayed or exited some 57 million tons per year of gross LNG newbuild capacity. In the US, this included Shell’s exiting of the Energy Transfer-operated Lake Charles brownfield development, while Cameron LNG trains 4 and 5 and Driftwood LNG -- projects which both involve Total -- were delayed. The Exxon-operated Rovuma LNG project in Mozambique was also a high-profile casualty. Three months on and the majors remain cautious, focusing on flagship LNG projects while seeking to postpone or withdrawal completely from others. On his company’s recent second-quarter earnings call, Total CEO Patrick Pouyanne conceded that US LNG continues to be “not very profitable,” but he insisted that “you don’t make the energy transition ... shifting from coal to gas without involving the LNG market.” In fact, Pouyanne, said the stalling of some projects will be good for the LNG sector simply because many had been scheduled for sanction soon, which would have led to oversupply from 2023-26. Total itself has three LNG projects scheduled to “come at a time where we can expect ... to have a much more balanced market.” Total’s Russian partner, Novatek, recently said despite capital spending cuts it will continue to invest in their Arctic LNG 2 plant, which remains scheduled for start-up in 2023. After reaching a final investment decision in December, Nigeria LNG’s Train 7 -- in which Total is a participant -- remains on track to start production in 2024. Meanwhile, Total recently put in place the funding needed to proceed with its $20 billion-plus Mozambique LNG project, which was sanctioned last year (EIF Jul.22'20). After having bet big on LNG via its $50 billion BG acquisition, Shell remains committed to the LNG sector, which underpins its integrated gas-to-power strategy. Yet after its exit of Lake Charles during the first quarter the Anglo-Dutch major has maintained its caution when it comes to near-term LNG investments. In early July news emerged that it is seeking to exit the Inpex-operated Abadi LNG project in Indonesia, while the company has also pulled back from LNG assets in Australia. Still, longer term it believes the sector has strong prospects. “We believe the fundamentals of the LNG business remain very strong,” CFO Jessica Uhl told reporters at the end of July, highlighting increasing demand for energy from growing populations that are getting wealthier as well as gas’s expected inclusion within future low-carbon power systems. These majors’ bullish outlooks for LNG over the long-term chime with the robust picture seen by Energy Intelligence’s Global LNG Service, although this picture is characterised by oversupply later this decade. In its Critical Trends report for August, the Global LNG Service estimates LNG demand to grow at 4% annually through to 2030, driven by a need to bridge gas supply gaps in large growth markets that have remained unchanged by this year’s coronavirus and oil market crises. However, Energy Intelligence’s base-case demand and supply scenarios show a significantly oversupplied market in the late 2020s, although some of this surplus could be eroded by project delays and cancellations. When it comes to the US majors, Chevron is one company that has made a countercyclical move recently due to the financial resilience its robust balance sheet gives it. Picking up Noble Energy for $13 billion has bought it operatorship of three major gas fields in the Eastern Mediterranean -- Leviathan, Tamar and Aphrodite -- which may give it options to build LNG assets in the region (related). However, although Energy Intelligence’s Global LNG Service points out that an LNG export option in the Eastern Med would help to expand Chevron’s LNG portfolio, which is concentrated in Australia, feasibility questions persist, so a multifaceted gas market solution is more likely. Meanwhile, Exxon’s ambitions in LNG, as well as other sectors, are hampered by high break-even costs and its refusal to cut its dividend holding back its capital spending (EIF Aug.12'20). Consequently, a decision to sanction its 15.2 million ton per year Rovuma LNG project -- originally scheduled for the first half of 2020 -- has been held over to next year. As far as BP is concerned, while it currently holds a sizable portfolio of LNG assets itself, its significant LNG marketing and trading capabilities give it an opportunity to run an asset-light LNG operation in the future. This means it would not need to commit huge sums to multi-decade projects as the energy transition plays out, yet it would still play a role in the LNG market. Such an approach could stand it in good stead given that it plans to reduce its oil and gas production on the way to becoming a consumer-focused integrated energy company that gets its customers the energy they need from a variety of sources (EIF Aug.12'20). Next month’s capital markets day should reveal more about the UK major’s plans in this area. But whatever strategies the majors decide to follow over the long term, they see LNG playing a key part in them, according to TJ Conway, head of energy transition research at Energy Intelligence’s Research & Advisory unit. “First, it’s because they have the supply and need to sell it. Second, gas and LNG demand growth prospects remain brighter than oil’s. Third, in theory gas/LNG has a smaller carbon footprint… and, longer term, is a potential entry point into hydrogen,” he said.