Abstract
Are liquefied natural gas (LNG) projects currently viable? LNG projects viability has been shown to be sensitive to crude oil price. Crude oil prices fell below the 2009-2014 five-year average in early September 2014. The drastic fall in price was from a monthly peak of $112 per barrel (bbl) in June 2014, falling to $62/bbl in December. Since 2016 the oil and gas market has gone through a period of rebalancing, resulting in modest recovery in prices. Oil price recovery reached a peak of $85/bbl in October 2018. Gas prices have also achieved similar modest price recovery. The industry has now entered what appears to be an expansion phase: The five largest international oil companies exceeded expectations for 2018. A window of opportunity may exist for new LNG projects to commence production in anticipation of an undersupplied market (2025-2035). Viability of new LNG projects will depend on future oil price. LNG projects can provide long and stable dividends for shareholder companies, certain risks found in tight oil and upstream projects are absent.
Highlights
The headline news in the oil and gas industry for 2014 was the oil price collapse
Are liquefied natural gas (LNG) projects currently viable? LNG projects viability has been shown to be sensitive to crude oil price
A comparison was made between the funds flow from operations (FFO) profile for LNG projects and various North American oil and gas projects ranging from mining to light oil [11]
Summary
LNG projects viability is sensitive to the crude oil price [1]. Since 2014 there has been a modest rebound in oil and gas price, but with a lot of volatility [2]. Oil prices have experienced multi-decade eras of relative stability and wild, boom-bust gyrations... Changes in oil and gas prices since the crash of 2014 are revealed in the beginning of this paper. The UN Paris Agreement is discussed with its implications for oil and gas projects, and LNG in particular. Towards the end of the paper are projections for the oil price and LNG supply and demand, with implications for LNG projects viability. The paper concludes with discussion about the profitably of international oil companies in 2018 (mostly due to the oil price rebound) and the implications for LNG projects
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