Bear with me, this will only take a second: The market for super-chilled LNG is heating up.
There. It’s done. Out of my system. Ah, clichés. If necessity is the mother of invention (cliché), then clichés are the mothers of lame writing (not exactly a cliché but self-evident).
In this instance, though, reaching back for inspiration can be justified. The “heating up” line was deployed ad nauseum in coverage of LNG in 2014 (I should know, I used it enough), and it’s starting to look like 2023 is the new 2014.
Three major projects with total capacity of 5.1 Bcf/d are on track for final investment decisions this year, the most since 4.9 Bcf/d in 2014, Reuters has reported. They include Venture Global LNG’s Plaquemines facility in Louisiana (1.2 Bcf/d) and Sempra Energy’s facility in Port Arthur, Texas (1.8 Bcf/d). NextDecade’s Rio Grande project in Brownsville, Texas (2.1 Bcf/d) would be the third.
Then there are the deals signed to move that gas. INEOS Energy Trading will transport 1.4 million tonnes per annum of LNG from Sempra’s terminal to Germany’s Brunsbuttel regasification facility via two brand-spanking-new carriers built by MOL in South Korea. Cheniere locked in a 20-year agreement to sell about 1.8 mtpa to China’s ENN Natural Gas. Part of that deal is subject to an FID on the first train of Cheniere’s Sabine Pass Liquefaction Expansion Project and stems from China’s demand as it shifts away from coal.
Four scenarios
So, let’s blast “Happy” by Pharrell Williams and look at the numbers.
Everything hinges on price. If the price of natural gas isn’t high enough overseas, it’s not worth building the export terminals here. Clearly, the recent slew of deals reveals confidence that price won’t be a problem.
The Energy Information Administration (EIA) projects volumes of U.S. LNG on the global market to rise, eventually forcing international prices to drop. The opposite happens domestically—increased exports tighten the U.S. natural gas market and push up prices.
Eventually, the EIA says prices reach an equilibrium at which building new LNG capacity no longer makes economic sense because the spread will evaporate. That will limit LNG exports, which, if demand continues to rise, will push global prices…you get the picture.
The EIA lays out four scenarios for the LNG market in 2050: the reference case from its Annual Energy Outlook; low international gas prices; higher international gas prices; and higher prices combined with faster development of export facilities.
What is interesting about the EIA analysis is that, while LNG exports affect U.S. natural gas prices, it’s not by much. Or, at least, not as much as it has been.
In the combination scenario of fast development and high international prices for LNG, exports will come in 77% higher than the base case in 2050. The Henry Hub price of $4.81/MMBtu, however, is only 28% higher.
And consumption will be flat across the board.
“In total, U.S. natural gas consumption changed only slightly across the cases because decreases in domestic consumption are largely offset by additional natural gas consumption required to support higher levels of LNG production and transmission,” the EIA says in its latest report in May.
The upshot in the EIA analysis is that, barring unexpectedly low international prices, LNG exports will become the largest segment of U.S. natural gas consumption beginning in the 2030s. And shipping it to those in Europe and Asia lacking in our bounty will not cause economic hardship domestically.
Makes ya want to dance like it’s 2014.
Recommended Reading
NextDecade Targets Second Half of 2024 for Phase 2 FID at Rio Grande LNG
2024-03-13 - NextDecade updated its progress on Phase 1 of the Rio Grande LNG facility and said it is targeting a final investment decision on two additional trains in the second half of 2024.
NextDecade Raises ‘Going Concern’ Doubts Amid Rio Grande LNG FID
2024-05-13 - NextDecade, which is developing the Rio Grande LNG project in Brownsville, once again highlighted “going concerns” in its SEC 10-Q filing but says Phase 1 of its project is fully financed and under construction.
Gunvor Group Inks Purchase Agreement with Texas LNG Brownsville
2024-03-19 - The agreement with Texas LNG Brownsville calls for a 20-year free on-board sale and purchase agreement of 0.5 million tonnes per annum of LNG for a Gunvor Group subsidiary.
Mexico Pacific FID Imminent for Saguaro LNG Trains 1 and 2
2024-04-04 - Mexico Pacific Ltd. is close to taking an initial final investment decision for the first two trains at its Saguaro Energía LNG facility in Sonora, Mexico, which will source feed gas from the Permian Basin.
ConocoPhillips Looks to Scale Portfolio, But Citgo Auction Not a Factor
2024-05-15 - ConocoPhillips has a long-term ambition to boost its LNG offtake capacity to between 10 mtpa to 15 mtpa as it keeps a short-term eye on the auction of Citgo Petroleum.