Gulf Coast liquefaction capacity build-out continues [Gas in Transition]

The build-out of liquefaction capacity on the US Gulf Coast continues apace, spurred by rising gas demand and prices as various buyers have scrambled to lock in new long-term LNG supplies this year.

Since the start of 2022, Venture Global LNG has brought its Calcasieu Pass LNG terminal online and Cheniere Energy has started up the sixth train at its Sabine Pass liquefaction plant. Meanwhile, QatarEnergy and ExxonMobil are aiming to complete construction on the Golden Pass LNG terminal by 2024 and final investment decisions (FIDs) were announced this year on Venture Global’s Plaquemines terminal and the Stage 3 expansion project at Cheniere’s Corpus Christi LNG facility.

Gas market dynamics over the course of this year to date have also improved the chances of projects whose future was previously less certain, so further FIDs on both newbuild facilities and expansions of existing projects appear likely. A number of developers that had previously been struggling to attract buyers for their planned LNG terminals have announced new offtake agreements in recent months.

This has come about in the wake of Russia’s invasion of Ukraine. Europe is seeking to phase out its Russian gas imports as rapidly as possible, so it comes as no surprise that European buyers are turning their attention to the US LNG industry. However, many of the new offtake agreements announced since the war started have been with Asian buyers. This can be attributed to the fact that negotiations had likely already been underway for some time and were hurriedly wrapped up, as well as the fact that Asian buyers are keen to reduce their exposure to the spot market, which has been affected by prices spiking to record highs this year. Negotiations with more European buyers are likely underway currently, so more deals could be set to materialise in the not-too-distant future, paving the way for more liquefaction capacity to proceed to construction.

Looking even further ahead, some of the major players on the Gulf Coast have ambitions to grow considerably from current levels over the long term. Cheniere, the US’ largest LNG producer, with a current liquefaction capacity of 45mn metric tons/year, said in mid-September that it was aiming to raise its capacity to 60mn mt/yr via currently planned expansions, and potentially to up to 90mn mt/yr over the longer term. Venture Global – which aims to bring on new liquefaction capacity rapidly using a modular approach and took Calcasieu Pass from FID to start-up within 29 months – has a total of 70mn mt/yr of capacity planned.

Indeed, the progress made by Venture Global has exceeded expectations.

“Calcasieu Pass, the seventh US LNG export facility, has ramped up to full production in record time this year, 1.0-1.5 years sooner than was assumed in our forecast,” a US Energy Information Administration (EIA) natural gas industry economist, Victoria Zaretskaya, tells NGW. “There are three other US LNG export facilities currently under construction. Two of these facilities have taken FID this year and moved to construction. The pace of US LNG export capacity development and the volume of exports have both exceeded our forecasts.”

Venture Global is now aiming to progress as rapidly with Plaquemines LNG and has already started signing up offtakers for its proposed CP2 project as it seeks to take advantage of higher global demand for LNG.

Cheniere has also started allocating some of the volumes it is contracting out to buyers to future expansions beyond what is currently under development. And Sempra Energy recently signed a preliminary agreement that allows for the reallocation of volumes between two planned expansions.

Such a strategy could put these companies at an advantage as they can reallocate volumes to other facilities that are already in production if they have any challenges with constructing new capacity on schedule. This could potentially make them more attractive to buyers than volumes being offered by developers with a single project in the works that may yet be delayed.

Pace of expansion

The pace of liquefaction capacity expansion on the Gulf Coast is driven by various factors, including the key question of whether developers are able to sell enough LNG volumes under long-term contracts.

There are also regulatory hurdles to overcome, but with the administration of US president Joe Biden talking up the country’s ability to help Europe wean itself off Russian gas imports, it appears that the regulatory environment will not become more challenging in the near future than it is currently. And a number of proposed projects have already cleared the necessary regulatory hurdles and can proceed once they have achieved certain other milestones.

“Currently, there are over 20bn cubic feet/day of new proposed LNG export projects in the United States that have received a full set of government approvals,” says Zaretskaya. “Any of these projects can move forward to construction once the final investment decision is taken.”

With a number of both preliminary and firm offtake agreements announced so far this year, including for volumes from the brownfield Lake Charles LNG, which entails a conversion of an existing import terminal to exports, NextDecade’s Rio Grande LNG and the planned Delfin Midstream floating LNG (FLNG) facility. All three of these projects are targeting an FID by the end of this year.

“There has been a flurry of new contracts signed between developers of US LNG and prospective buyers since the beginning of this year,” says Zaretskaya. “By our estimates, at least 4.5bn ft3/day of firm contracts (sales and purchase agreements) has been signed for exports to Asia and Europe and for exports managed by portfolio players such as Shell and BP. Another 2bn ft3/d was contracted under preliminary agreements (MoU and HoA). These new contracts move proposed US LNG export projects a step closer to reaching a final investment decision because firm offtake contracts are usually required by the banks to finance highly capital-intensive LNG export facilities.”

Some of the current pre-FID projects are at an advantage compared with others as they compete for buyers and financing.

“We expect that expansion projects that will be developed at the site of the existing export facilities will likely go forward sooner than greenfield projects because of lower investment costs,” says Zaretskaya. “However, any LNG project that has secured contracts for sufficient export volume can move forward to FID and construction shortly.”

Other expansions under development include the addition of a fourth train at Sempra’s Cameron LNG terminal, with an FID targeted for 2023.

LNG giant

The US LNG exporters are betting on the country’s ample reserves of shale gas to meet their ever-growing feedstock needs. Indeed, Cheniere cited the US gas production potential in the same presentation in which it revealed its long-term expansion ambitions. The EIA agrees that the country’s gas industry can keep its growing number of LNG terminals fed for some time yet.

“Recently, US dry natural gas production has set a new all-time record of 100bn ft3/d,” says Zaretskaya. “Current LNG exports averaged 10.9bn ft3/d so far this year, which is about 10% of total natural gas production. The US has a large volume of natural gas reserves that can support higher levels of LNG exports for years to come.”

This bodes well for the largest LNG exporters – Cheniere, and likely Venture Global over time. Whether those companies will ultimately realise their ambitions of building 90mn mt/yr and 70mn mt/yr of LNG capacity respectively on the Gulf Coast remains to be seen and depends on a variety of other factors that will affect the LNG market in the years to come. Right now, though, they have many reasons to be confident.