Sliding Oil Prices Force LNG Developers to Push Pause

20 Feb 2015: LNG project developers were surely starting to feel anxious about the economic viability of their liquefaction ventures when Brent crude oil prices sunk into the mid-$80s/bbl in early November. US liquefaction schemes were being called into question as Henry Hub-linked supply was in danger of being more expensive than existing long-term oil-linked LNG. Australian export plants coming online this year or ones under construction had cost blowouts that made $100/bbl oil almost essential with any substantial drop in oil prices will put them in trouble. It is new supply projects from the US, Canada, and East Africa that have not reached a final investment decision that are having to redo their oil price assumptions and cost of capital calculations amid the sharp drop in oil prices to see if their plans still match their minimum return on investment. Brent at $80/bbl was already threatening planners’ oil price stress test levels to the low end. But the stark decline in prices throughout December and January that brought Brent into the mid-$40s/bbl range blew through nearly everyone’s low-case oil price scenario. Crude’s downward move has already claimed some casualties in the LNG market but the overall response has been a collective pause as the market resets its expectations for oil prices. Download here