Only a Fraction of LNG Export Projects Will be Built: Shell

Only a fraction of the natural gas export projects being developed around the globe will become reality as high costs and weakening gas prices torpedo those that until recently promised huge returns on investment.

Large natural gas field discoveries on and offshore have prompted several countries to plan liquefied natural gas (LNGLF) (LNG) export projects, including in North America, Australia, East Africa and the east Mediterranean.

But high development costs and low profit margins in the gas sector mean most of the projects will fail, Royal Dutch Shell (RYDAF)'s director of projects and technology told Reuters in an interview. "There is always so much talk about these big LNG projects around the world, but only a small fraction of them will get built," said Matthias Bichsel, who is also a member of Shell's Executive Committee.

"Costs in the oil and gas sector are still on the rise and outpacing inflation, and gas projects are extremely price-sensitive because the margins are so thin," he added.

European forward gas prices, which are used to make investment decisions for big pipeline and gas field projects, have dropped more than 15 percent since the beginning of the year.

They are close to five-year lows, and most analysts expect further declines as new producers flood markets with gas. Analysts have said many new gas projects will struggle to make the return on investment necessary to receive the required financing.

In Asia, where 70 percent of global LNG trading takes place, spot LNG prices have fallen more than 35 percent this year to their lowest since late 2012.

(By Henning Gloystein)