Boomtime for N American LNG Projects

North America will lead the next wave of global LNG project sanctions in 2019, according to Wood Mackenzie's latest quarterly North America LNG projects update published December 18.

There are three US Gulf Coast developments – Cheniere Energy's Sabine Pass Train 6, Qatar Petroleum/ExxonMobil's Golden Pass and Venture Global's Calcasieu Pass – expected to reach final investment decision (FID) in the first half of 2019.

Alex Munton, principal analyst, Americas LNG, at Wood Mackenzie: "With FID imminent on three US Gulf Coast LNG projects, North America is set to lead an expected record year for LNG project sanctions. With at least two other Gulf Coast projects – Freeport Train 4 and possibly Driftwood LNG – also not far behind, the first half of 2019 will be an especially busy one for the US."

After a lull in investment prior to 2018, the North America LNG market has sprung back to life. Since September, Cheniere Marketing (CMI), Venture Global, Sempra, Tellurian, Freeport and Woodfibre all announced long-term agreements with offtakers. In the same period, 13mn mt/yr in sales were announced, totalling more than 20mn mt/year for the year.

"2018 was a stellar year for sales of North America LNG, and US LNG in particular," Munton said. "Renewed confidence in the outlook for LNG, combined with the choice, flexibility and competitiveness the US market offers facilitated this surge in interest."

The construction and expansion of the three Gulf Coast LNG facilities, totalling up to 30mn mt/yr of capacity, will also inject billions of dollars of investment in the region. According to Wood Mackenzie, $20bn could be invested in the three projects over the next four years. 

"While the Gulf Coast remains the key growth region for North America LNG, projects in Canada and Mexico are also progressing and attracting interest," Munton said. "Additional west Canadian capacity could help further open Canadian supply to global markets, and we are now seeing momentum around Mexico as an alternative export route for US production."   

According to Wood Mackenzie’s analysis, Canada's Woodfibre LNG could reach FID in 2019, contingent on the execution of an engineering, procurement and construction (EPC) contract. Mexico's Costa Azul Phase 1 LNG export terminal still needs to finalise an EPC contract, binding offtake agreements, permitting and financing arrangements. However, progress is being made and it too could reach FID in 2019.

Other projects loom large

There are other companies with more or less bullish predictions, which NGW has reported on. Tellurian, set up by ex-Cheniere and BG executives, might also announce a final investment decision in the first half of next year, having told NGW in October that it expected  by the end of this year to sell out enough capacity in provisional contracts to justify at least three and possibly five trains of 5.5mn mt/yr each, with FID following soon after. And ExxonMobil told NGW in October that Golden Pass would have FID this year, although Qatar Petroleum was earlier this week more cautious.

There are also projects in northeast Canada, such as Pieridae's Goldboro and LNG Limited's Bear Head project, both of which are advanced in the planning stage but they say they need access to low-cost gas, for example from the Montney shale or from offshore Nova Scotia, to be viable.

The extra North American LNG on the market, priced primarily off US spot gas, has long been expected to demolish what remains of the traditional LNG market, with capacity sold out for 20 years but sellers using their offtake to service the needs of a wide range of short, medium and term purchasers who cannot know what their demand will be in the future. In that view, oil indexation shrinks as a proportion of the pricing terms, as gas-to-gas competition sets the price of the marginal cargo. WoodMac itself said last week that, while it expects oil indexation to continue dominating Asian LNG markets, nonetheless Asian buyers may be more inclined towards hub indexation.  

But Dated Brent or some alternative will still continue to play a role, with Novatek's Yamal LNG and succeeding Arctic LNG projects having no spot market to price off, except for the Asian assessments now published by price reporting agencies; and LNG Canada's partners will sell on whatever terms they can agree with their buyers.

Crude pricing at least offers both sides some predictability and transparency, the published price of crude over the previous two or three quarters dictating the price of deliveries in the present quarter, depending on the buyer's location and whatever percentage discount ('slope') it was able to negotiate.