Suddenly small is the next big thing in the liquefied natural gas business. As Bloomberg reports, slumping energy prices are crimping the ability of suppliers to finance new export terminals, giving small, highly-focused efforts the edge over the megaprojects the industry has favored for years.
In recent years, energy companies have clamored to develop LNG export proposals for coastlines around the world to satiate Asian demand for gas, driven by economic growth in China and a move away from nuclear power in Japan. The idea is to pipe gas gathered inland and offshore to refrigeration complexes near the coast that liquefy the fuel for export on tankers.
Now, with finances tight, smaller projects have an advantage in that “the capital costs are small, and they can get to production pretty quickly,” says Uday Turaga, chief executive officer of ADI Analytics in Houston. “People are a little down on the large-scale LNG projects.”
The change in thinking comes as Japan’s weighted import price of LNG is poised to average between $9 and $10 per million British thermal units in 2015, compared with $15.75 in 2014, according to IHS Inc. Chevron Corp. and BG Group Plc are among supermajors reducing LNG spending, as the industry cuts $86 billion from capital budgets this year, according to RBC Dominion Securities.
Big oil companies will probably delay the priciest facilities as they struggle to appease shareholders seeking quick returns, says William Frohnhoefer, an analyst at BTIG in New York. While a $2.5 billion LNG project could pay for itself in three to five years, a $60 billion plan would take 12 to 15 years to recoup, he notes.
