HOUSTON – A few months ago, Israel and some Arab countries were laying the foundations for an energy partnership that offered the potential for economic cooperation between formerly hostile neighbors.
Israel began selling natural gas to Egypt, which in turn revived two gas export terminals, attracting much-needed foreign investment and paving the way for Israeli gas to Europe. Lebanon was set to drill its first offshore gas well after years of delays. And Palestinian officials joined a regional forum with officials from Israel and other countries to increase energy exports to Europe.
But the coronavirus pandemic abruptly halted these efforts, delaying exploration and exports. Gas prices, already low after a relatively warm winter in the northern hemisphere, fell and storage facilities filled to the brim. Struggling international oil and gas companies cut investment budgets and abandoned projects.
Damage to the gas trade extends far beyond the Middle East, hurting businesses from Australia to the US coast of the Gulf of Mexico. The pandemic has been holding back for two decades the global expansion of natural gas, which has replaced coal for electricity and heating and has even competed with oil as a transportation fuel in some developing countries.
Oil tankers carrying gas in its compressed, cooled liquid form are now inactive off the coast of Europe, as factories and businesses return only slowly, if at all, and many people are forced to wait. the pandemic at home.
“The trajectory of the coronavirus is a big unknown in terms of economic and financial impact and policy changes to manage the fallout,” said Leslie Palti-Guzman, president of GasVista, a research and consulting company. “But this represents an unprecedented risk for L.N.G. demand and investment.
Investment decisions for multi-billion dollar liquefied natural gas export terminals – which can take up to a decade to plan, license and build – have been delayed or canceled in Australia, Mozambique, Qatar, in Mauritania, Senegal and the United States in recent weeks. Industry leaders estimate that investments of more than $ 50 billion will be delayed this year and next. Coronavirus outbreaks have also disrupted supply chains and caused labor shortages, delaying the construction of approved projects in Canada, the United States and Indonesia.
Even if the delays in investment and construction are temporary, they could produce a gas shortage and drive up prices later in the decade. This could potentially help the coal. But delays would most likely also be a boon for renewable energies like solar and wind, which are already growing fast because their use does not worsen climate change and their costs have come down.
American gas exporters, who were able to offer their customers lower prices than their suppliers in Qatar and Australia, have now lost that advantage since prices for Asian and European gas fell. European countries have taken advantage of flexible contracts that the American L.N.G. manufacturers offer and cancel shipments.
Cheniere, based in Houston, the best American L.N.G. producer and exporter, says its final decision on a major expansion of an export facility outside Corpus Christi, Texas, now depends on whether it can conclude enough contracts with foreign buyers.
San Diego-based Sempra Energy announced on May 4 that it will delay the final decision to build an export terminal in Port Arthur, Texas, until next year. Earlier, Texas LNG delayed its final decision on a terminal project in Brownsville, Texas, and Royal Dutch Shell withdrew from a Lake Charles, Louisiana joint venture with Energy Transfer.
Tellurian, also based in Houston, recently laid off 40 percent of its 176 employees and cut other expenses in an effort to save a proposed project in Lake Charles. The company struggles to finance construction despite a federal permit to produce and export 27.6 million metric tonnes of L.N.G. annually.
Yet industry leaders hope their business will rebound.
“The coronavirus will delay decisions by a year, but that won’t change the fundamentals,” said Charif Souki, president of Tellurian. He noted that China, which appears to have largely stopped the spread of the coronavirus, is starting to use more gas. “There is no incentive to use coal at this time,” said Souki.
Falling gas prices have also encouraged countries like India, which depends on energy imports, to buy more. Partly because of this, global gas sales have declined only slightly in recent weeks. The International Energy Agency predicts a worldwide drop in gas consumption of 5% in 2020.
Still, some industry experts have said the pandemic could weaken the outlook for natural gas compared to renewable energy. With falling prices for solar and wind power, improved battery storage technology and concerns about climate change, renewable energy could be the biggest long-term threat to natural gas.
Jason Bordoff, director of the Center on Global Energy Policy at Columbia University, said demand for gas could recover in a few years and continue to replace coal in developing countries as they try to reduce air pollution in big cities . But he added that the pandemic, especially if it lasted, could force political and business leaders to be more wary of gas imports from distant coasts.
“L.N.G., even before coronavirus, was a market that required significant capital investment in the face of uncertainty about the future of markets, prices and policies,” said Bordoff. “And these concerns are now even more uncertain to exit Covid-19 than they were before. “
From American L.N.G. exports started in 2016, the United States has become the third largest exporter after Australia and Qatar. Last year, the United States built more production capacity than any other country, a trend that continues in 2020.
Much of the surge in US gas exports is based on cheap, bubbling oil gas from the Texas shale fields. But that advantage may be fading now that oil producers are closing wells and decommissioning facilities due to the economic downturn and declining demand for energy.
“The coronavirus and the drop in crude prices will lead to a multi-year decline in the growth of associated gases which is the key to the L.N.G. “Said Mark Le Dain, vice president of strategy at Validere, a Canadian software provider for oil and gas companies. “This change will structurally reduce the U.S. market share in the L.N.G. worldwide, especially in Europe, and Russia will recover more. “
Russia has already a strong global network of pipelines and strives to increase production and exports of L.N.G. with tax incentives. Qatar also hopes to continue increasing its exports, as well as the political influence that energy sales give it in the Middle East and North Africa, even if its incomes decline.
The most immediate and drastic impacts are felt in the eastern Mediterranean, where political leaders had placed economic and geopolitical hopes on the gas boom.
The exceptional discoveries of natural gas off the coasts of Israel, Egypt and Cyprus, and the promise to do more in Lebanese waters, have made the region a hot exploration area in recent years. Israel, in particular, hopes that sales of gas to Egyptian, Jordanian and Palestinian consumers will ease tensions. But the new gas has flooded a market where prices are collapsing, delaying a bigger windfall in world markets.
Egypt has closed an L.N.G. export terminal and canceled an agreement to reopen a second. In the absence of lucrative markets, Egypt has also halted all exports of liquefied gas. It was a setback for Israel, which had hoped to export its new gas wealth through Egyptian factories, and at least one company postponed exploration along the Israeli coast. And after the first well drilled off the coast of Lebanon dried up, an auction for future foreign investment was delayed due to lack of interest from the industry.
“They were on the verge of regional transformation, and now they are stuck with a question mark and a cloud,” said Nikos Tsafos, a natural gas expert at the Center for Strategic and International Studies. “People wonder: is development delayed or will it even happen? It’s my sense regionally and globally. ”