Third wave of US LNG could add 190mn mt/yr: WoodMac
Global natural gas and LNG consultancy Wood Mackenzie said in a new opinion report released February 22 a third wave of LNG developments in the US could add as much as 190mn metric tons/year of new capacity by 2030.
And while cost inflation and competition are creating challenges for securing financing, it said, the new capacity additions could add up to investments totalling some $100bn.
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From a standing start in 2016, when Cheniere Energy commissioned its first LNG export terminal, US LNG exports have climbed to about 76.4mn mt in 2022, ranking the US third behind Australia and Qatar.
But with the 15mn mt/yr Freeport LNG terminal expected to resume full production this spring, total exports this year are “easily expected” to exceed volumes in 2022, which would place the US at the top of the LNG exports list.
But reaching that pinnacle, WoodMac said, “is just the start of the story.”
Closing out the second wave of US LNG developments, final investment decisions (FIDs) have been taken on four new projects – Golden Pass LNG, Plaquemines LNG (Phase 1), Corpus Christi Stage 3 and New Fortress Energy’s Fast LNG project in Louisiana. Together, those projects will contribute nearly 45mn mt/year of new capacity beginning in 2024, and a new third wave of FIDs could soon increase capacity even more, WoodMac said.
“Last year saw European and Asian LNG prices hit record highs, while a challenging geopolitical environment underlined the need to invest in energy security,” it said. “As a result, buyers, including portfolio players, and US producers and infrastructure companies lined up behind long-term deals with US LNG projects. A whopping 65mn mt/yr of long-term contracts were signed in 2022 alone, dwarfing the 18.5mn mt/yr of new contracts confirmed in the previous year.”
On the back of that record level of contracting, WoodMac said a host of pre-FID LNG projects have advanced in the US, with many either having reached or are close to achieving offtake thresholds needed to raise debt. And several developers have already signed or are negotiating engineering, procurement and construction (EPC) contracts for their projects.
“Our analysis indicates that if current momentum continues between 70mn mt/yr and 190mn mt/yr could be added to US LNG capacity before the end of the decade,” the WoodMac opinion piece says. “That would more than double current exports.”
But despite the expected surge in developments, the consultancy warns there are headwinds.
Gulf Coast projects built in the last five years have experienced “significant” cost inflation, and some projects in the second US wave suffered “major” cost overruns. Demand for manpower and services to complete new projects is likely to outstrip supply, and these forces could add even more costs and lead to delays.
And competitive forces have kept liquefaction fees low, which is leading to tight margins for many new projects, with estimated internal rates of return running as low as 5-6%.
“Based on these returns, some projects are finding it challenging to secure finance, particularly via equity raises.”