We already build this in our thesis on the LNG (liquid natural gas) market and the economics of InterOil’s LNG facility, but it’s nice to have specialist on our side.

LNG supply to remain tight over next decade

• DELAYS in liquefied natural gas production projects will result in a tight supply market for the next 15 years, a report by Bernstein Research predicts.
• The current gap between global supply and demand is set to continue, with liquefaction projects delayed by rising costs and a shortage of construction expertise, Bernstein’s quarterly report on LNG said.
• “Beyond 2009, the outlook over the next decade and a half appears to be of an increasingly tight global LNG market,” Bernstein said, according to Reuters.
• “The supply/demand balance is set to tighten over the next 12 years, as incremental regasification (import) capacity is likely to continue to outpace liquefaction capacity,”it added.
• Another potential drag on LNG production projects is the impact of the credit crunch on funding.
• For example, InterOil Corp and Liquid Niugini Gas’s Papua New Guinea LNG project may be delayed by two years until 2014 because of the global credit crisis, LNG Intelligence said, citing InterOil’s chief executive Phil Mulacek.
• The crisis was increasing borrowing costs and tightening lending, Mr Mulacek was quoted as saying.
• Output from the project was scheduled to start in late 2012.
• One of the main drivers for liquefaction project delays is cost increases.
• Bernstein estimates that costs will rise from this year’s average of $600 a tonne of LNG capacity to about $1,750 a tonne by 2020.
• “It looks like [the cost] is heading up and up,’ said Alexander Inkster at Bernstein Research.
• “And that’s versus regasification costs which are relatively flat.”
• In Australia, the firm has pushed projects back a few years, as costs increase and they compete for scarce construction capacity.
• Bernstein does not see any more production capacity in Nigeria coming online before 2015, including Bonny Island, Brass LNG, Olokola LNG and an expansion at Nigeria LNG.
• Nigerian LNG exports met a recent setback in September after the government said that it would suspend LNG export projects if they jeopardised domestic supply.

By the way, it is funny, there it is again. The delay until 2014 doesn’t have anything to do with the credit crunch, it is a result of the drilling and appraisal delays and was already widely known for the followers of IOC for like half a year.

InterOil is not looking at conventional credit to finance it’s planned LNG facility, but for a partner to do this, in exchange for one or all of the following (depending on what kind of partner)

1. Guaranteed LNG supplies
2. Drilling prospects
3. A percentage of Elk/Antelope

It’s very well possible they’re looking for more than one partner, and since they have things to offer which are scarce and in great demand (promising drilling prospects, guaranteed LNG supplies, gas resources) and interested parties in these (Asian utilities, oil majors) have deep pockets and are not or hardly affected by the credit crisis, we expect them to get a deal.