Energy junior LNG Limited under the pump
Listed energy junior LNG Limited is just a month away from running out of cash after a takeover deal collapsed.
The collapse in energy prices and a global gas glut continue to pile pressure on the balance sheets of smaller producers, with prospective US gas exporter LNG Limited just a month away from running out of cash after a takeover deal collapsed.
The Australian-listed junior has been working to kickstart its ambitious $US5bn ($7.8bn) Magnolia LNG project in Louisiana but has run into a series of difficulties including a slump in the LNG price and fallout from the US-China trade war, complicating moves to sign up customers for its project.
A takeover deal by Singapore’s LNG9 has now been terminated after a financing deal collapsed.
LNG Limited said it was now on an urgent funding search with its existing cash reserves due to run out in May.
The company was working with parties on “strategic alternatives” to boost its cash position and sustain its operations.
The company’s shares plummeted 31 per cent to 7.9c on Tuesday and are now down 60 per cent so far this year.
US gas prices have sunk to their lowest level since 1995, with domestic stockpiles due to hit a record in 2020 as demand falls due to the coronavirus which roils demand.
The outlook is also downbeat for high cost US LNG exporters with a surplus of supply in international markets and prices in Asia also hovering near record lows.
Citi estimates it could take years or even a decade for global gas demand to absorb excess supplies.
US exporters, including LNG Limited, which are yet to sanction projects now face a difficult path ahead.
“With the global gas oversupply set to last for years, LNG export terminals that haven’t received final investment decisions may have to wait for years, perhaps even a decade, before the next window of opportunity calling for new LNG supply emerges,” Citi said.
“The oil price collapse ushers in a new production reality,” it said.
Australian LNG producers also face a difficult market ahead, with spot prices to average just $US3.10 per million BTU in 2020, according to Citi.
Still, 2021 could see some recovery in prices and the bulk of Australian output is sold on term contracts.
Global oversupply of LNG could force curtailments of US LNG exports but Australia should be better placed.
“In Australia Prelude has been offline due to a technical issue, though it also happens to be at the high end of the global LNG supply operating expenditure cost surve,” Citi said.
“Other Australian LNG export terminals have lower operating expenditure which we think won’t be affected unless and until Asian prices fall to $US2 or lower.”
LNG Limited outlined a plan last May to make a final investment decision on its 8 million tonne a year Magnolia export project in the second half of 2019 after initially targeting a call earlier in 2019.
In addition to the Magnolia project, LNG Limited also hopes to develop the Bear Head LNG plant in Canada’s Nova Scotia.