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LNG Buying Spree Not Spurring FIDs

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Asian buyers are ramping up LNG procurement, signaling a robust appetite for long-term LNG supplies despite the lingering pandemic and the energy transition. Unlike some Western countries that are souring on gas due to decarbonization plans, Asia retains a positive outlook on gas/LNG (PIW Apr.9'21). Asian consumers are looking to reduce carbon emissions by replacing coal with gas and leaning on LNG imports to make up for falling domestic gas output. Asia’s LNG buying activity started picking up in late 2020 and gathered pace this year. Six deals were announced last month alone. Asian buyers, led by China and followed by Pakistan, Bangladesh, Singapore and Taiwan, have committed to purchase at least 20 million tons per year of LNG in the last 10 months. The momentum is set to continue this year, especially in Southeast Asia, where first-time buyers are seeking LNG supply for new terminals. Several factors have spurred Asia’s buying spree. They include growing concerns the market will tighten from 2022-23 due to delays of LNG projects under construction and sparse final investment decisions (FIDs) taken from 2015-18. Price volatility and spikes to dizzying levels last winter and again this summer show buyers that spot cargoes aren't always cheap -- they are now above traditional oil-linked term prices -- or readily available (PIW Jan.15'21). Qatar, which is spearheading a 32 million ton per year expansion, has dominated recent dealmaking, flexing its muscles as the world’s lowest-cost producer (PIW Feb.12'21). Its efforts to offer unbeatable prices to buyers have paid off. Portfolio suppliers are also scouring the market to supplement their volumes and help make up for delays to projects under construction (PIW Jul.9'21). Buyers want to take advantage of current favorable term prices -- traditionally priced at coefficients to crude benchmark Brent -- before they start to rise. Qatar has led the market by offering 10.2% of Brent for new long-term contracts, but observers say prices for supplies starting in 2022-23 are starting to edge up. A supplier source said medium-term contracts are priced in the $11s and long-term deals at low to mid $10s. “We like to think the era of low $10s is over, but it all depends on the Qataris.” Another seller source advises buyers to decide soon whether to keep relying on spot cargoes or sign a long-term contract. “If they wait longer and a supply crunch comes, they will be exposed to uncertainties and price volatility." Energy Intelligence’s Research & Advisory unit expects new LNG capacity to rebound a bit in 2022 before thinning out again in 2023-24. The recent strong market has not so far translated into FIDs for many delayed projects, which are still grappling with cost and marketing challenges amid formidable competition from rival Qatar. Near-term supply additions are limited to Venture Global’s 10 million ton/yr Calcasieu Pass, which will likely start commissioning toward the end of 2021, Eni’s 3.4 million ton/yr Coral floating LNG in Mozambique, due in 2022, and Tangguh Train 3 in mid-2022, which was originally due to start up in 2020. BP’s Greater Tortue Ahmeyim LNG project has also been postponed from 2022 to third-quarter 2023. The price recovery and Asia’s growing demand are good news for pre-sanctioned projects, but not all stand to benefit. Almost all recent Asian deals were signed with established LNG sellers such as Qatar, Petronas, Royal Dutch Shell, TotalEnergies and BP, rather than US greenfield schemes. This underscores buyers’ preference to deal with players that have existing supplies, lower risks of project delays, and the ability to offer flexible options -- including carbon-neutral LNG (PIW Sep.25'20). Uncertainty over how the energy transition will affect LNG's role after 2030-35 is further encouraging a shift toward 10-year deals, which makes existing sellers more appealing than greenfield projects that usually require 20 years of offtake. The only Asian contracts signed with US developers in the last 18 months were a preliminary five-year deal between Chinese gas distributor Foran Energy and existing producer Cheniere and a 20-year deal Japanese trader Mitsui signed with Sempra's brownfield Energia Costa Azul project, which was sanctioned last November. Driftwood developer Tellurian nailed down three major offtake deals with traders -- Vitol, Gunvor and Shell, which are acting as aggregators for buyers -- by offering spot Dutch TTF and Asian spot marker Japan-Korea Marker netback pricing. But this structure won't be easily replicated. Asian Term Contracts Signed in July 2021 Buyer Supplier Quantity

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Gas Supply, Gas Prices
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