In race to fill LNG supply gap, project goalposts have changed

LONDON (Reuters) - The race is on for liquefied natural gas (LNG) producers to build export terminals as demand soars, but the criteria for financing such mega-projects have shifted as traditional relationships with LNG consumers have begun to disintegrate.

Royal Dutch Shell’s final investment decision (FID) taken last month for a $30 billion LNG Canada project was a shot in the arm for the LNG industry, which is emerging from almost three years of low prices and investment.

As a vote of confidence in the LNG market, Shell’s decision is expected to get the ball rolling on a wave of approvals for dozens of similar projects around the world that have been planned for years but not yet finalized.

But the FID represented a different financing structure, unreliant on commitments from large buyers as previous mega-projects had been, such as the recently commissioned Ichthys facility in Australia or the U.S. Sabine Pass plant.

Instead, Shell will absorb the cost into its budget and will effectively worry about the ultimate buyers later - as one of the largest corporate purchasers of LNG in the world, it can absorb the new volumes into its global portfolio.

Demand for LNG is there - it is expected almost to double to 550 million tons a year (mtpa) by 2030, leaving room for plenty more export terminals despite an influx of fresh supply from new, mostly U.S., terminals.

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