Asian growth pushes three liquefied natural gas projects closer to reality

ExxonMobil today approved the development of its $15bn liquefied natural gas project in Papua New Guinea, potentially doubling the size of the country’s economy. It is the second final investment decision at a big LNG project this year and goes ahead despite warnings that the world could suffer a gas glut because of the recent drop in demand, especially in the US.

But Exxon and its partners are confident they have lined up customers in Asia, which will receive the gas by 2013-2014 when construction is completed.

Frank Harris, analyst at Wood Mackenzie calls the decision “a bit of positive news in what is generally a bleak outlook for gas at the moment.”

Together with Chevron’s recent approval Australia’s Gorgon project, the PNG project will add 21.6m tonnes a year capacity, almost as much capacity as the world added in the previous three years, he notes.

But that’s not all. Chevron last week announced it had secured a buyer – Tokyo Electric Power – for almost half the volumes expected to be available if its Wheatstone LNG project in Australia goes ahead. That takes the US company a sizable step closer to being able to make a final investment decision, which is expected next year.

If Wheatstone does get the go-ahead, Chevron will make up a lot of ground between it and peers such as ExxonMobil and Royal Dutch Shell, which have larger LNG portfolios.

All three recent deals (Gorgon, PNG LNG and Wheatstone) could have a knock-on effect on the many other gas projects – including LNG and coal seam gas (CGS) – that are under consideration in Australia.

“It exacerbates the competitive dynamic around new supply and could be bad news for some of the CSG to LNG projects,” says Mr Harris.

As domestic production and the recession have eaten into the potential US demand for LNG, the continued economic growth of Asia has become more important.

Turning an LNG project from a dream to a reality now, more than ever, means securing long-term Asian customers.

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