Oil & Gas PracticeCrunch time in the North American LNG industry: How to meet demandNew EPC contracting strategies could help to reduce escalating costs for planned US greenfield projects and avoid a potential LNG sup-ply-demand gap for the world.December 2023© Getty ImagesThis article is a collaborative effort by Pradhuman Aggarwal, Justin Dahl, Dumitru Dediu, Sam Linder, and Micah Smith, representing views from McKinsey’s Oil & Gas Practice.Global demand for liquefied natural gas (LNG) is surging as regions with growing demand look to source from those with abundant supply. The urgency to meet this demand is intensifying due to growing energy demand from regions such as Asia, as well as the declining supply of domestic gas and the interruption of piped supply (for example, Russian piped gas supply to Europe).The last two years have seen more than ten projects with over 100 million tons per annum (MTPA) of LNG capacity taking final investment decision (FID), many of these in North America. There is now unprecedented pressure on the industry to deliver these projects, as well as line up new projects that prepare to take FID.The projects are largely concentrated along the Gulf Coast, where they are competing over a limited pool of resources—including labor, supplies, and engineering, procurement, and construction (EPC) contractors, who face growing backlogs. This is exacerbating cost escalations and financial pressures on project owners.In this highly competitive market with rising capital costs, projects that have not yet reached FID may need to rethink their strategies, and projects that have already taken FID may need to build capabilities to monitor progress to deliver on schedule and avoid cost escalation.This article explores the predicted continued rise in LNG demand and the key challenges that US-based developments face to meet it. The looming LNG supply-demand gapIn McKinsey’s “Current Trajectory” and “Further Acceleration” energy-transition scenarios, global 1 Global energy perspective 2022, McKinsey, April 26, 2022. For further information see “Energy outlook 2022,” BP, 2022; “Global gas outlook 2050,” GECF, December 2022; “World energy outlook 2022,” IEA, October 2022; “Shell LNG outlook 2023,” Shell, February 2023.2 McKinsey Gas Intelligence Model.3 McKinsey Gas Intelligence Model.4 McKinsey analysis.demand for LNG is expected to rise by 1.5 to 3.0 percent per year until 2035.1 By 2050, LNG is projected to almost double as a share of the global gas supply, from 13 to 24 percent.2Demand is affected by several factors, internationally and domestically. It reflects the growing influence of climate change policies, which are increasing both the share of renewables in grids and end use electrification.Domestic production of gas and LNG in Southeast Asia is dropping just as regional demand rises, due in part to the r...
