Research from Wood Mackenzie indicated that capital expenditure for both LNG plant and upstream infrastructure will amount to over US$200 billion between 2019 and 2025. This will greatly boost engineering, procurement and construction (EPC) contractors and other providers along the supply chain.


Nevertheless, the LNG industry is notorious for cost overruns and project delays, as just 10% of all LNG projects have been constructed under budget, while 60% have experienced delays.

Commenting on the results of the research, Liam Kelleher, senior global LNG research analyst, said that the many projects jostling for FID right now have low headline costs, but ahead of the historical reality of LNG construction, some project delays are likely.

While there is a risk that current low LNG prices may see some proposed projects cancelled, Wood Mackenzie believes the risk to new LNG supply development is low and we see considerable upside supply potential

Mr. Kelleher expects a further 70 mmtpa to be sanctioned in the next three years. If some of this materialise, construction would be stretched beyond the height of the 2010-14 boom. However, that does not mean the upcoming cycle is destined to be a replay of the last.

In fact, developers will be more careful about LNG development solutions, choosing modularisation and capex phasing. This, along with renewed caution with investment programmes across the upstream sector, could limit global upstream inflation.

In addition, lower raw materials costs should also assist in keeping a cap on expenditure, as global steel prices are set to ease from their 2018 peak.

Nonetheless, Mr. Kelleher added that while LNG operators have enjoyed a return to profits in recent years, many LNG EPC contractors remain firmly in the red.

What is more, other parts of the value chain could also experience an increase in workload and with it, costs. A lean time for upstream subcontractors has led to a 25% drop of workload capacity across the sector. An uptick in activity is expected to bring even higher rig rates and subsea costs, a risk for major integrated projects in Mozambique and Qatar.

This risk will only be heightened if more projects go ahead than our base case forecast. Only time will tell whether LNG will start to shrug off its difficult delivery reputation

Liam Kelleher concluded.