Is Louisiana’s LNG boom slowing down? Analysts weigh in after project delays

BY ROBERT STEWART | Staff writer Aug 3, 2023 www.theadvocate.com

Delfin LNG just wants a little more time. Again.

The floating liquefied natural gas terminal, planned for a site roughly 40 miles from the Cameron Parish coast, is asking the Federal Energy Regulatory Commission for a fifth extension of its development timeline. When authorizing LNG projects, FERC grants developers a limited window for construction.

All four previous extensions were no more than one year, though Delfin LNG unsuccessfully sought a 3½-year extension in 2019. Its latest request is for another four years, until 2027, to finish building.

Delfin LNG’s latest ask, filed with FERC in July, once again cited COVID-19 disruptions and “complications” related to U.S. trade with China as causes for its delays. It also cited “the continuing evolution” of floating LNG terminal technology.

Delfin LNG still appears to be on track, assuming FERC grants the latest extension request. The terminal has $18 billion worth of long-term contracts either signed or in the works. It has finished an initial design study and plans to hire a primary contractor by September before closing on its financing in October.

However, Delfin LNG isn’t the only Louisiana LNG project facing setbacks. Four of the 14 LNG export terminals either built in or planned for Louisiana are grappling with extended timelines because of regulatory delays or financing struggles, according to The Advocate’s record of the state’s LNG facilities.

Lake Charles LNG failed to convince the Department of Energy to give it more time to begin exporting LNG. Driftwood LNG has yet to announce a final investment decision, or FID, even though its construction began in April 2022. West Delta LNG’s bid for a deepwater port license has been delayed after environmental groups raised questions about the firm’s failure to adhere to application deadlines.

That list doesn’t even include G2 Net-Zero, which recently pulled the plug on its planned LNG plant in Cameron Parish, or Venture Global LNG’s Calcasieu Pass terminal, which has shipped LNG since early 2022 without reaching full commercial operations.

Though bigger LNG players here are firmly established, the delays facing newer projects have raised questions about how much the state’s LNG industry will continue to boom.

Analysts said delays are all too common for industrial projects that require lengthy regulatory reviews and boundless resources, particularly capital. However, fundamental capitalism could also be at play: too many players rushed into a roaring market, and some of them are getting weeded out.

“It’s not a reflection that there’s an easing of interest in the LNG industry,” said Tyson Slocum, energy program director for Public Citizen, a consumer advocacy nonprofit in Washington. “It just means there are an awful lot of players competing in this space, and that’s going to result in some of them getting delayed a little bit, some of them dropping out entirely.”

A long-term commitment

When it began in 2022, Russia’s war with Ukraine roiled global energy markets and convinced a rush of overseas buyers to solidify their natural gas supplies through long-term LNG contracts, said Greg Upton, interim executive director of LSU’s Center for Energy Studies. Those long-term deals are paramount for multibillion-dollar LNG projects to secure lender support.

“There’s a little bit less uncertainty right now than there was right after the Russian invasion of Ukraine,” Upton said. “That could also be impacting their ability to get long-term contracts signed. And at the end of the day, they need to have so many of those signed in order to move forward with the project.”

Of the five delayed or canceled Louisiana projects, three of them have at least one long-term contract in place, according to Department of Energy filings. Delfin LNG has signed three with another one pending, and Lake Charles LNG has six.

Driftwood LNG has only one after four of its deals — two with Shell NA LNG LLC, and one each with Vitol Inc. and Total Gas & Power North America Inc. — were terminated last year.

West Delta LNG hasn’t announced any long-term pacts. G2 Net-Zero never did.

Of those five projects, only Driftwood LNG has started construction.

In addition to financing difficulties, the regulatory process might be too much for some projects, Slocum said. The average FERC review for an LNG project is three years, and not everyone has the resources to wait that long.

Though the Biden administration has been supportive of the LNG industry, the Department of Energy issued a new policy statement in April saying it wouldn’t grant extension requests for export authorizations unless a project had begun construction. That policy statement arose after some industry leaders complained about a glut of LNG applicants, Slocum said.

“The folks that saw themselves as more legitimate players with deep pockets and connections said, ‘Hey, these nonserious players are sort of interfering because they’re gobbling up authorization space and they may not actually be using it, so you need to sort of start kicking them out of the queue,’” Slocum said.

Resources and regulations

Despite the challenges facing the newer facilities, Louisiana’s established LNG players are still rolling.

Sabine Pass and Cameron LNG, two of the nation’s top three export terminals, have expansions in the works. Even with the issues at Calcasieu Pass, Venture Global LNG has locked up two massive financing packages for its impending Plaquemines LNG terminal in Plaquemines Parish.

“We don’t see much of a slowdown,” said Rob Jennings, vice president of natural gas markets at the American Petroleum Institute, an industry lobbying organization. “If you think all the way back to the (Ukraine) invasion last year, last February, we’ve had five FIDs since then.”

The price difference between U.S. natural gas and European and Asian natural gas is still wide enough to convince foreign buyers to seek cheaper American supplies, Upton said.

Futures for Henry Hub, the U.S. benchmark for natural gas, were trading at $2.48 per million British thermal units as of Wednesday, according to CME Group, a global market data company. Dutch TTF, the European standard, was trading at $8.75 per MMBtu. Asian benchmark JKM was trading at $10.92.

The bigger question, Upton said, is whether companies will continue to pay a premium for LNG, which offers some logistical flexibility compared to other energy sources.

“If I sign a long-term contract to buy LNG, it’s going to keep coming, and by the way, if I don’t need that gas, I can actually divert that shipment to another person, to another location that needs that gas,” Upton said. “You’re really paying a premium for the flexibility.”

The future of LNG regulatory oversight could further shape the industry, Slocum said.

The Lower Energy Costs Act — which aims to speed up environmental review processes for LNG terminals and other energy projects, among myriad issues — passed the Republican-led House earlier this year but hasn’t moved in the Democrat-controlled Senate. The legislation was spearheaded by House Majority Leader Steve Scalise and Republican Rep. Garret Graves, both of Louisiana.

Loosening the regulatory burden would help the smaller projects that can’t handle lengthy reviews, though it would further exacerbate environmental risks for Louisiana’s Gulf Coast, Slocum said.

“If you remove that FERC regulatory process, and you allow some of these smaller scale facilities to basically just take your local zoning board out for a steak dinner and you got yourself your building permit and you can start construction the next day and you can finish it in 12 months, obviously that’s a big advantage,” Slocum said.