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US LNG: here comes the second wave

Tue 12 Feb 2019 by Susan L. Sakmar, Visiting Assistant Law Professor, University of Houston Law Center

US LNG:  here comes the second wave

Last week, LNG giants ExxonMobil and Qatar Petroleum announced FID on Golden Pass LNG. Built originally to handle imports from Qatar, Golden Pass LNG will now add liquefaction facilities to handle exports from the US. The Golden Pass FID is just the first of many proposed US projects jockeying for position to catch the second wave of US LNG export projects with start-up dates in the mid-2020s. Who else will be in the second wave? Before we answer that, it is important to note that the first wave of US LNG exports has not even fully hit yet.

US LNG – the first wave

Thus far, only three US LNG export projects in the first wave of US LNG projects are online – Cheniere’s Sabine Pass T1-5, Dominion’s Cove Point Maryland facility and Cheniere’s Corpus Christi T1. Sempra’s Cameron LNG will be the fourth project online with the first cargo expected in just a few weeks. Kinder Morgan’s Elba Island LNG, notable for the fact that it is not located on the US Gulf Coast but rather in Savannah, Georgia, is commissioning and expected to be online by the end of Q1 2019, making it the fifth US LNG export project. Freeport LNG T1 is expected online in the first half of 2019 and the US EIA projects that US LNG export capacity will reach 8.9 Bcf/d by the end of 2019, making the US the third largest exporter in the world behind Australia and Qatar. Freeport Train 3 and Corpus Christi Train 3 are expected in service in 2020 and 2021, respectively. 

US LNG – who will be in the second wave?

Even though the entire first wave of US LNG is not yet online, the market is eagerly awaiting FID announcements for the second wave of US LNG – projects targeting start-up in the mid-2020s. The FID on Golden Pass LNG was widely expected since Golden Pass has had all of the necessary regulatory approvals in place and it was just a matter of time before ExxonMobil and Qatar Petroleum brought the project forward. A number of US projects are in various stages of development and it is already clear that the second wave of US projects will be very different from the first wave of projects in terms of the variety of business models being proposed to attract a wide variety of buyers, partners, and most importantly, project finance. Here is a snapshot of a few other US projects likely to move forward this year – either by taking FID or advancing their business model.

Cheniere - Sabine Pass Train 6

In February 2016, Cheniere became the first US LNG exporter in the lower-48 states when it shipped the first cargo from its Sabine Pass facility located in Louisiana. Cheniere is developing up to six trains at the Sabine Pass LNG export site. Trains 1 through 4 are operational with Train 5 soon to follow. Train 6 is being commercialised and has all necessary regulatory approvals in place, including approval by the US Department of Energy and FERC.

In November 2018, Cheniere announced it had finalised the EPC contract with Bechtel for Sabine Pass Train 6 and was releasing Bechtel to commence early engineering, procurement, and construction activities for Train 6 ahead of making a final investment decision. Cheniere also indicated that its recent long-term SPA with Malaysia’s Petronas LNG supported progress toward a FID on Train 6 in 2019.

Venture Global - Calcasieu Pass

Venture Global’s Calcasieu Pass LNG export project is located in south-western Louisiana’s Cameron Parish, less than 80 km south of Lake Charles. The 10-mta facility will employ a process solution from GE Oil & Gas, now part of Baker Hughes, that utilises mid-scale, modular, factory-fabricated liquefaction trains. 

Over the past few years, Venture Global continued to surprise the industry with a slew of long-term deals from credit-worthy buyers including Shell, BP, Edison, SpA, Galp, Repsol and PGNiG. In fact, after initially signing a 1M tonne binding 20-year agreement in 2016, Shell doubled down in 2018 and signed another 1M tonne deal.

Venture Global was widely expected to take FID in early 2019 pending a final order from the FERC which was supposed to be issued by the end of January 2019. But back in December 2018, FERC inexplicably pulled Venture Gobal’s Calcasieu Pass project from their schedule with speculation that Democratic Commissioner Cheryl LaFleur was the hold-out voter over concerns about greenhouse gas emissions. 

Recently, Commissioner LaFleur announced she will not seek a third term at FERC and will leave the Commission later in 2019. Ms LaFleur’s departure could ultimately bode well for future approvals, but it will leave FERC with only three sitting regulators – two Republicans Chairman Neil Chatterjee and Commissioner Bernard McNamee and Democratic Commissioner Rick Glick. Since no one political party can hold more than three seats, the White House will need to nominate a Republican and a Democrat to fill the two vacancies. In the meantime, it is unclear how FERC will move through the applications and whether it will continue to follow the timeline it set out in August 2018 that was intended to streamline FERC’s environmental process and speed up approvals.

Tellurian - Driftwood LNG

One project that seems to be moving through the FERC process without any issue is Tellurian’s Driftwood LNG. FERC issued its final environmental impact statement for Tellurian’s Driftwood LNG on 18 January 2019.

Tellurian is an interesting second wave US LNG project to watch since the founders, LNG industry mavericks Charif Souki and Martin Houston, along with their president Meg Gentle and the Tellurian team are trying to shake up the LNG world by offering a new business model for the 27.6 mta Driftwood LNG export project. In a competitive world for LNG financing and buyers, Tellurian continues to modify its business model to attract investors with the jury still out whether they will succeed.

Tellurian’s most recent offering reduces the equity buy-in for potential partners, which means partners would pay less up front and the project would take on more debt to make up the difference. Whereas most of the second wave of US LNG projects is trying to secure long-term contracts from offtakers, Tellurian is seeking equity partners. Last year the minimum Driftwood LNG buy-in was US$1,500/tonne or $1.5Bn. In the most recent offering, the buy-in has been lowered to US$500/tonne or US$500M. Project debt will increase from US$3.5Bn as originally proposed to approximately US$20Bn, and the LNG cost delivered FOB will be US$4.50/MMBtu (US$3/MMBtu for feedgas and liquefaction and US$1.50/MMBtu for debt servicing) up from US$3/MMBtu.

Tellurian is working on proving the commercial viability of its model and reportedly is on a short-list of projects being considered by Saudi Aramco, which is looking to take an equity stake in a US LNG export project. Another project reportedly being considered by Aramco is Sempra’s Port Arthur project in Texas. It is expected that Aramco will announce a deal in the first half of 2019 and it remains to be seen whether it is with Tellurian, Sempra or another US LNG project.

NextDecade – Rio Grande LNG

Another interesting project to watch is NextDecade’s Rio Grande LNG, which lays claim to being the largest private infrastructure project in Texas – no small feat in a state where everything is big. Rio Grande LNG is a large-scale (27 mta, 6 Trains) project and is one of three proposed LNG export projects at the Port of Brownsville in southern Texas and the Gulf of Mexico. All of the Brownsville projects are facing opposition from ‘Save RGV From LNG’, a coalition of environmentalists, fishermen, shrimpers, neighbouring cities and concerned residents.

In December 2018, and despite opposition from Save RGV from LNG, NextDecade obtained three important state air quality permits from Texas regulators. There is plenty of high-level support for the project including Houston Mayor Sylvester Turner and US Senator John Cornyn, R-Texas, both of who wrote open letters to FERC supporting the project. Subject to FERC approval, NextDecade expects to take FID in Q3 2019.

In the meantime, NextDecade is selecting an EPC contractor and is marketing its business model, which is notable for offering multiple pricing options to customers, including LNG linked to Brent oil, LNG linked to Henry Hub – the conventional US offer to LNG customers found in the first wave of projects, or LNG indexed to Waha (another US hub near the Permian Basin), plus transportation to Aqua Dulce where NextDecade’s Rio Bravo Pipeline will originate to deliver gas to its Rio Grande LNG project in South Texas.

Other US projects to watch in 2019

As shown on the most recent map from FERC, there are many proposed US LNG export projects hoping to be in the second wave of US LNG export projects. Three projects, Magnolia LNG, Delfin LNG, and Lake Charles, have been approved by both the US Department of Energy and the FERC, but have yet to take FID and 2019 could very well be their year. Further south, Sempra’s Costa Azul project in Baja California Mexico is working to negotiate final 20-year LNG sales agreements with units of Total, Mitsui & Co and Tokyo Gas, and is targeting FID in late 2019. In the dynamic world of LNG, anything could happen and it is clear that 2019 is already shaping up to be a very interesting year for the LNG industry.

Susan L Sakmar is licensed to practice law in California and has worked in a variety of legal, corporate, nonprofit, and academic environments. She currently is a Visiting Law Professor at the University of Houston Law Center where she teaches a seminar on Shale Gas & LNG. She also consults on various aspects of global gas markets and has worked on a number of training projects related to LNG, as well as several projects focused on regulatory and environmental issues for global shale gas development.

Her LNG book, Energy for the 21st Century: Opportunities and Challenges for Liquefied Natural Gas analyses the critical role LNG will play in the 21st century as the glue linking global gas markets and was chosen as an outstanding academic title for 2014.

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