Bernstein Sees U.S. LNG Plants Scrapped as Buyers Look Elsewhere

Most of the proposed liquefied natural gas plants meant to ship cargoes out of the U.S. will “never be built” as the collapse in oil prices damps global demand for the nation’s gas, according to Sanford C. Bernstein & Co.

With the long-term price difference between oil and gas converging, the U.S. is no longer as competitive as it used to be, Bernstein analysts including Neil Beveridge in Hong Kong said in an e-mailed report on Jan. 21. World LNG demand is set to increase by 9.8 percent to 268 million metric tons in 2015 after three years of slow growth as lower prices stimulate consumption in countries including India, they predicted.

“The LNG industry is suffering from an anxiety attack over falling oil prices and uncertainty around global growth,” said Beveridge. “We expect buyers’ appetite for U.S. LNG to be diminished as they reappraise supply options in a lower oil price environment.”

The U.S. has received 47 applications to export nearly 80 billion cubic feet per day of gas in its liquefied form, according to the Energy Department. While the country currently produces no LNG, Chevron Corp. and Cheniere Energy Inc. are among companies racing to supply the cleanest fossil fuel to Japan and other large consumers amid opposition to coal and nuclear power.

U.S. LNG is only competitive in the Pacific if long-term Henry Hub gas prices are below $4 per million British thermal units and Brent crude is sold above $80 a barrel, according to Bernstein. So far in January, natural gas futures have averaged $2.97 in New York while London-traded Brent oil contracts are at $49.89 a barrel.

Commodity price volatility will result in fewer LNG projects being sanctioned as negotiations for long-term supply stall, Bernstein predicted. For new plants to compete successfully, the global industry will have to cut costs through “service industry deflation” or by relocating projects away from Australia and toward lower-cost centers, it said.

“Outside of the U.S., we expect continued expansion in Papua New Guinea and the emergence of new centers in Canada and Mozambique over the coming years,” Beveridge said.

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