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Wood Mackenzie: LNG Confronts Its Demons

A liquid natural gas offshore terminal. The gas will be sent to the customer by a pipeline from the terminal to the coast, Swinoujscie, Poland. Source: Getty Images

The world needs more LNG. Gas is a low carbon-intensive fuel and LNG can help to meet rising demand for energy in markets detached from the resource. But LNG has also been synonymous with poor project management. Several giant LNG developments earlier this decade suffered from runaway costs and delivery slippage. Investors still bear the scars, visible today in diluted returns.

The problem projects typically shared similar characteristics – complexity in design and scope, and developed in high-cost, often remote, locations. These challenges were magnified in places like Australia, where limited labour availability, and multiple projects, led to spiralling inflation. Environmental requirements and government bureaucracy stalled the process and further added to costs.

The industry is gearing up again, literally, for another giant investment phase. This new cycle will see US$215 billion spent between 2019 and 2025 on greenfield and brownfield projects, backfill and finishing construction on those already underway. In total, these projects will bring another 182 mmtpa to market, adding 50% to global supply. Annual capital spend could touch US$70 billion in the early 2020s, up from the current low of under US$30 billion and only just shy of the 2013 peak.

Has the industry learned its lessons? Click here for an analysis.

 

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