The only constant in the LNG industry again appears to be change – unpredictable change. The LNG supply and demand balance shifted in 2014 as LNG supply appears, at least temporarily, to have surpassed demand. Other conditions also seem favorable to LNG buyers as oil prices start the year at 50% of the level of a year ago and at least eight LNG export projects are scheduled to come on line just this year.  Although the current focus is on oil price levels, the LNG industry is influenced by numerous other factors, from technological to political, and changes in any one factor may affect the entire LNG market. This article examines some of the top questions that the LNG industry may face in 2015.
Will lower oil prices slow down development of LNG export projects? Will construction costs also decrease?
The steep drop in crude oil prices has already claimed one proposed LNG export project as a victim and some (including from the dozens of proposed North American projects) may soon follow. Excelerate Energy has halted development of its proposed floating liquefaction project in Lavaca Bay, Texas and noted that "renewed interest of potential counterparties" is required to get the project back on track.  Will other proposed LNG export projects follow suit? The answer likely depends on the status of the project itself, including whether the project has signed up buyers and/or customers and secured sufficient development funding. As compared to international projects, U.S. projects seem to have one slight advantage: contracting under a tolling model supported by plentiful North American gas versus the traditional take-or-pay model supported perhaps by yet-to-be-developed gas reserves. For potential buyers and users, the tolling model enables them to diversify their LNG supply portfolio at a lower cost because they effectively pay a fixed rate for an option to receive LNG and only pay the full commodity price for the LNG itself if they elect to take.
Assuming that a project's sponsors and potential counterparties remain interested in proceeding with the project, could the drop in oil prices actually benefit projects under development by lowering construction costs? Take the example of Woodside Petroleum, which also recently again postponed its decision to proceed with the Browse LNG project in Australia. In making this decision, Woodside noted that it has started seeing the effect of lower oil prices on its supply costs and hopes to use this postponement as an opportunity to lower its construction costs.  Any positive effect on construction costs, however, is likely to vary by locale as construction costs are typically driven by labor availability, productivity and cost.
Will any greenfield export projects in the U.S. or Canada take FID?
Three more North American projects made a positive final investment decision ("FID") to proceed with construction in 2014: Freeport in Texas, Cove Point in Maryland and Cameron in Louisiana. These are all brownfield projects with existing import facilities. What about the greenfield projects? The answer likely depends on the greenfield project's need for securing buyers or customers in a buyer's market and its access to funding for construction.
In the U.S., it appears that at least one greenfield LNG export project will take FID in 2015 -- Cheniere's Corpus Christi LNG project. Cheniere has signed binding sale and purchase agreements for trains 1 and 2 of the Corpus Christi LNG project and engaged banks to act as lead arrangers to arrange financing for the project.  The main challenge for the remaining U.S. greenfield projects will be whether they have the development capital necessary to fund the costly permitting process and sufficient customers contracted to support capital to fund the construction of the project. While the front-running brownfield projects have attracted enough customers that they are focusing on expansion projects , few announcements of advancement have been released in respect of the U.S. greenfield projects in the earlier stages of development. Aside from Excelerate, other projects may be cancelled or sold if they are unable to attract customers and/or necessary development capital.
In Canada, one major uncertainty was resolved in late 2014 for Canadian projects when British Columbia passed the Liquefied Natural Gas Income Tax Act. The final legislation provides for a reduced tax rate of 3.5% (compared to the originally proposed 7%).  That said, cost concerns remain a potential hindrance to attracting customers and development capital for Canadian projects. Most Canadian projects face steeper infrastructure costs given their remote location and the long-haul pipelines necessary to deliver feed gas to the project. One potential bright spot looks to be the Pacific NorthWest LNG project led by Petronas, with additional LNG-buying sponsors based in Japan, China and India. While Petronas recently announced a postponement of FID for the project, some analysts view the delay as aimed at allowing the project sponsors additional time to lower construction costs.  If those efforts are successful and final Canadian government approvals obtained, Pacific NorthWest LNG may soon become the first Canadian LNG export project to take FID.
How will LNG pricing and price reviews be affected by the current market?
The past few years many Asian LNG buyers sought Henry Hub-indexed purchase contracts. Given the numerous contracts signed recently in support of the Sabine Pass, Freeport, Cove Point and Cameron projects, at what point will Asian buyers decide they have enough exposure to Henry Hub pricing? Will lower oil prices diminish buyers' desires to diversify pricing indexation and trigger a return for contracts with traditional oil-linked pricing? The move to hybrid-pricing formulae (with long-term prices being based on both crude oil and Henry Hub) may continue. One market participant cautions that any pricing formula must fully take into account any added delivery flexibility that is now often negotiated by the parties. 
One of the motivations for Asian buyers to sign Henry Hub based contracts has been to assist them in their very near term price reviews for non-U.S. sourced LNG. At what point will Asian buyers decide that they have achieved the necessary support for their price reviews and turn their attention to projects that are more conventional and perhaps closer in proximity? Whether LNG buyers will be able to take advantage of current market conditions to achieve lower prices in 2015 depends largely on the actual price review provisions in their contracts (e.g. whether prices will be re-determined by an arbitration panel based on pre-agreed criteria or whether no pricing changes are allowed without agreement of the parties).
Who will become LNG importers and help increase global LNG demand?
Demand in 2015 is expected to increase by 9.8 percent to 268 million tonnes per annum, up from 244 MTPA in 2014 and 231 MTPA in 2013. 
One of the chief reasons for the unprecedented growth for LNG in the last decade is due to the increase in LNG buyer countries (now over 30) and associated import terminals (now well over 100). New countries that currently have an import terminal under construction include Uruguay, Poland, Jordan and the Philippines. What additional countries will switch to LNG? Will the steady increase in new import terminals continue? As demand forecasts are becoming less optimistic for the traditional Asian LNG markets, will new buyers emerge to contract for LNG on a long-term basis?
China and India both have been active buyers in the past few years. However, at least one forecaster has lowered the demand growth for China.  And Gail is reported as attempting to resell some of the supply that it procured in recent years.  Could European countries provide much needed demand? Europe has been used to absorb excess spot cargoes , but the economic recovery in the region remains slow to elusive. On the other hand, European buyers make up majority of the buyers for Cheniere's advancing Corpus Christi project.
Floating storage and regasification vessels (FSRUs) have been considered a "fast-track" import technology solution, with at least 16 floating import facilities (including in Argentina, Brazil, China, Dubai, Indonesia, Israel, Italy, Lithuania, Kuwait, and Malaysia) now in use, with many intended to receive LNG on an intermittent basis during the year. Higher LNG demand may arise if additional FSRUs and other "smaller" buyers take advantage of lower prices to underpin initial investments in import infrastructure that may have languished at higher LNG prices.
In any event, emerging buyers in the LNG market may pose special challenges for developers relying on such buyers to support the development and financing for their LNG export projects. First, these new buyers lack the long track record of the traditional Asian buyers. Will the new buyers be as reliable in taking and paying for LNG cargoes? Second, many of the new buyers may be lacking in creditworthiness and financial security and require non-traditional credit terms and arrangements to support their long-term purchase contracts.
How will sales terms change in a buyers' market?
With new buyers in the market and low oil price levels, what changes in LNG sales terms can be expected for 2015? The recent trend of granting buyers more destination flexibility (often at a cost) is likely to continue. With emerging buyers or traditional buyers seeking supply diversity, future contracts may trend toward lower contract quantities and/or shorter durations.  Moreover, given the overly exciting "roller-coaster ride" in prices over the last decade, will sellers and/or buyers insist on more certainty and predictability around their ability to re-set prices periodically? It will be fascinating to see how contract terms continue to evolve this year in such a dynamic market.
How will completion of the first floating liquefaction project in 2015 affect the industry?
Petronas' project PFLNG 1 is the first floating liquefaction project scheduled to be completed in 2015. In fact, two floating liquefaction projects are scheduled to be completed in 2015; the other being Pacific Rubiales' project in Colombia. At 1.5 and 0.5 MTPA respectively, these projects are of a much smaller scale than Shell's 5.3 MTPA Prelude project (set for completion in 2017). Industry participants will be watching to see how the first projects to use floating liquefaction technology perform. If these projects prove to be successful, floating liquefaction projects may become more popular, especially for markets with demand for smaller production solutions. In fact, Exmar recently signed a contract for a second floating liquefaction unit with China's Wison Offshore & Marine and has an option for two additional floating liquefaction units. 
Will the expanded Panama Canal in 2015 be relevant to LNG shipping?
The expansion of the Panama Canal is expected to be completed during the third quarter of 2015 and will open up transit through the canal to 81% of the worldwide LNG fleet (as compared to 7.2% prior to the expansion).  All eyes are on whether the Panama Canal will truly facilitate shipping for contracts signed between U.S. LNG projects and Asian customers. The two key uncertainties surrounding the widened canal for LNG are cost and congestion.
With respect to cost, the Panama Canal Authority just released its proposed rate tolls, which equate to approximately $700,000 round trip for a 173,000 cubic meter ship, which is less than transit through the Suez Canal.  One consultant estimates the proposed tolls will permit U.S. cargoes to be shipped to Japan at an estimated cost of $1.75 per MMBtu versus $2.50 per MMBtu via the alternative route around the Cape of Good Hope.  Uncertainty remains, however, as to what additional fees will apply. With respect to congestion, industry participants are concerned about the lack of priority booking for LNG vessels and the canal's limit of six ship movements in each direction per day.  These concerns may, over time, affect whether or not LNG participants elect to transit the canal or opt for an alternate route.
Will unconventional gas developments (in China and elsewhere) stifle LNG demand?
Within a short period of time, the U.S. shale revolution has transformed the LNG industry in the U.S. from a country focused on LNG imports to one transfixed on maximizing LNG exports. Other countries are examining their own potential shale assets to see if they can replicate the success of the U.S. and reduce the need for relatively expensive gas imports. Thus far, no other country has been successful. These countries have faced technical difficulties and high costs. One of these countries, China, recently reduced its shale gas production target for 2020 by one third.  Will depressed oil prices make unconventional gas plays even less attractive for shale-rich countries?
What challenges face existing projects that are project financed?
Existing LNG export projects are not immune to changes in market conditions. Given that LNG from most export projects is sold at oil-linked prices, lower oil prices will be a big hit to their revenues. Those projects most at risk may include newer projects (such as those in Australia) which are burdened with higher capital costs. For example, BG recently noted a write-down of its investment in the Queensland-Curtis LNG project in Australia. 
Will lower revenues from oil-indexed LNG affect merely margin or the pockets of the project owners and lenders? In Egypt's Idku LNG plant, the project owners are subsidizing lowered revenues. Due to feed gas supply shortages, the plant is estimated to produce only a total of five cargoes for 2015.  Reportedly, a minimum of 22 cargoes is necessary to cover cost expenditures.  Thus, the equity owners in the project are being forced to cover these additional costs, including debt service.  Reduced oil prices will likely further worsen the revenue shortfall. Will equity owners at other projects have to face the same situation?
How much will global geopolitics affect the LNG industry?
Gas exports from Russia to Europe dropped to the lowest level in a decade in 2014.  The decline can be attributed to reasons of reduced demand as well as politics (i.e., EU's policy to reduce its dependence on Russian gas).  Within this past year, Russia also cancelled the South Stream pipeline project, which could have supplied almost 10% of Europe's gas demand from Russia via a route to Bulgaria.  On the other hand, Lithuania's new import terminal, aimed at reducing the country's dependence on Russian gas, opened in November 2014 with a cooler than expected reception – with only one company (state-owned Litgas) having agreed to purchase a mere 15% of the terminal's capacity and Estonia and Latvia so far showing no interest in booking capacity. 
Will Russian gas imports remain depressed in 2015 and thereby increase Europe's demand for LNG imports from other countries? Or will reduced Russian gas imports merely balance reduced European demand for gas supplies this year? In the meantime, geopolitics seemed to be at the heart of Russia's refocus on major Asian LNG and gas sales. Despite setbacks, including from sanctions, Russia continued to progress construction of the Asia-focused Yamal LNG project. Last year Russia also announced two new gas supply transactions with China; in total, these contracts are expected to cover China's total gas demand by 2020. 
Actions have been taken in other countries to counter the influence of Russia in the international gas market. In the U.S., a bipartisan bill has been introduced to expedite the approval of U.S. LNG export projects and reduce Russia's leverage (based on its gas reserves) over the U.S.'s European allies.  In Europe, Ukraine and Poland signed a deal to build a pipeline between the two countries as a means to "access to gas from the LNG terminals that have already been built in [Lithuania] and Poland."  It remains to be seen if current fiscal crisis in Russia will impede its ability to react to geopolitical pressures and opportunities during the remainder of 2015 and whether other countries will seriously pursue acting on their stated desire to reduce dependence on Russian gas supplies.
As 2015 begins, oil prices are on everyone's minds and seem to affect every industry. In the LNG industry, however, many other factors can have an impact on LNG supplies, demand or both. Until the answers to the questions above reveal themselves in 2015, it will be uncertain whether the LNG industry will continue to enjoy its earlier-predicted pattern of steady growth.