We Three Kings - Is U.S. LNG Development Cornered by the Big Three Developers?

Monday, 12/26/2022  Published by: Lindsay Schneider  rbnenergy.com

This year there’s been unprecedented forward momentum for LNG development. Since 2022 began, two U.S. projects have reached a final investment decision (FID), with a third expected to reach that milestone in early 2023. Offtakers have committed to 38 metric tons per annum (MMtpa), or 4.9 Bcf/d, of long-term LNG contracts from these and other proposed terminals this year and there’s another handful of U.S. projects with a realistic shot at FID in the next year or so, not to mention others in Mexico and Canada. Progress on the LNG front has been dominated by three companies: Cheniere, Sempra and Venture Global. While there are other projects inching closer to FID, those from the proven LNG developers — our “three kings” — have leapfrogged to the front of the line. In today’s RBN blog, we look at what those three have under development and what it means for everyone else trying to build LNG export capacity.

If we’re talking about the kings of U.S. LNG, we have to start with Cheniere. It first announced plans to export LNG from its Sabine Pass import terminal back in 2010 (light-green diamond in Figure 1, top line in Figure 2); two years later, the company took FID and began construction on the first and largest export terminal in the Lower 48. At 30 MMtpa, or about 4 Bcf/d, it’s double the size of anything else currently in operation in the U.S. Cheniere added Corpus Christi (dark-green diamond in Figure 2) to its portfolio in 2018 and it now has 45 MMtpa (~6 Bcf/d) of LNG export capacity in operation, making it the largest exporter in the U.S. and the second-largest in the world, with only QatarEnergy producing more LNG. Cheniere is also one of two companies to take FID on an LNG export project in the U.S. this year. The company in June gave the green light to Corpus Christi Stage III, which will add 10 MMtpa (~1.3 Bcf/d) of mid-scale modular LNG export capacity directly adjacent to the existing Corpus Christi terminal (see Jump In The Line, Part 2). Stage III will have its own pipeline, storage and liquefaction processes but will share marine infrastructure with the existing terminal.

As the project was closing in on FID, Cheniere began to sell offtake capacity from an unnamed Corpus Christi expansion. It quickly announced three deals totaling 2.8 MMtpa (~0.37 Bcf/d) of LNG, then later announced that this would be an expansion of Stage III, adding two mid-scale trains (8 and 9) for a total of 2.9 MMtpa (~0.38 Bcf/d) of capacity. The expansion, which was sold out before it even had a name or had filed any regulatory applications, is in the pre-filing process with the Federal Energy Regulatory Commission (FERC) and Cheniere expects to file its formal application early next year, with FID likely after it receives final authorization. Cheniere is targeting a continuous construction process, basically tacking this onto the end of the initial Stage III construction, which has already begun. The company has also said to expect more projects in the new year, as the Stage III expansion was essentially low-hanging fruit, a little bit of extra capacity that can largely fit into the existing and under-construction infrastructure. Cheniere is exploring further expansions at both terminals and the third vessel berth at Sabine Pass began operations earlier this year, paving the way for additional future trains at Sabine Pass in particular. (Cheniere also owns the land adjacent to both terminals.)

While Cheniere was building its empire, other companies began to dip their toes into LNG as well, with each of the other five operational LNG terminals in the U.S. owned by a different company. Cheniere’s export capacity currently dwarfs everyone else’s but that may not last forever. Sempra and Venture Global each operate an LNG terminal (we’re counting Venture Global’s Calcasieu Pass, which is technically partially in-service and partially commissioning, but exports in the past month have been consistent with full operations), have another under construction, and more capacity that is likely to reach FID in the coming year.

Sempra owns and operates Cameron LNG (yellow diamond), the three-train, 12-MMtpa (~1.6 Bcf/d) terminal in Louisiana; it also owns ECA LNG (orange-and-gray diamond), a small, single-train LNG terminal under construction on the West Coast of Mexico. Sempra has a long history of doing business in Mexico and owns a number of cross-border and in-Mexico pipelines, making the company ideally suited for building the first Mexican LNG export terminal, and potentially further projects down the line. In the U.S., Sempra is closing in on Port Arthur LNG (red-and-gray diamond), with a very realistic target FID early next year (see Jump in the Line, Part 5). While the Port Arthur project has been under development for a while, it was stalled and barely on our radar until this summer, when Sempra announced that the project was fully subscribed, albeit with non-binding agreements. Sempra now has 6.4 MMtpa of the project’s 10 MMtpa (~0.85 Bcf/d of 1.3 Bcf/d) secured in binding contracts and the rest — as well as some of the Phase 2 expansion of the terminal — in credible, non-binding agreements with named counterparties.

Speaking of expansions, Sempra also has one planned at the existing Cameron terminal. That project features a 6-MMtpa (~0.8 Bcf/d) train plus 1 MMtpa (~0.13 Bcf/d) of capacity from debottlenecking at the existing terminal. A lot of that capacity has been set aside for Cameron’s existing offtakers, with all of it secured under credible, non-binding deals. Cameron’s original offtake capacity was sold under tolling agreements and 75% of the debottlenecking capacity and 50% of the Train 4 capacity will also be structured that way and go to Cameron’s existing offtakers — TotalEnergies, Mitsui, and Japan LNG Investment (jointly owned by Mitsubishi Corp. and Nippon Yusen Kabushiki Kaisha). Sempra will market the remaining capacity itself. As with Cheniere’s latest expansion at Corpus Christi, the holdup here is more regulatory, as this project received a redesign and is now back under FERC review. If Sempra can close out development of both those projects it would have 31.5 MMtpa (~4.2 Bcf/d) of LNG export capacity in North America, with still more projects further back in the development process.

Finally, there’s the newest of our kings — Venture Global. The company’s first project, Calcasieu Pass (gray-and-purple striped diamond), is in the final stages of commissioning. The nine-unit terminal has seven of its units online and the final two in the midst of commissioning, but feedgas over the past few months has largely been where it’s expected to be once the site is fully online. Venture Global took FID on a second terminal, Plaquemines LNG (blue-and-gray diamond), back in May, making it the first project to reach the financial finish line post-COVID (see Jump In The Line, Part 1). Venture Global only took FID on the first 13.3 MMtpa (~1.76 Bcf/d) of the project, but the entire 20-MMtpa (~2.65 Bcf/d) terminal is likely to be built, with a second FID on the remaining capacity coming later in the construction phase. Venture Global is likely targeting continuous construction here, meaning that they intend to build the entire terminal sequentially as one project rather than two separate phases. It has already sold 75% of the pre-FID capacity, enough to support an FID, especially coupled with a sold-out Phase 1. That would add up to 30 MMtpa (~4 Bcf/d) of LNG export capacity for Venture Global, which also has more projects under development. As capacity on Plaquemines began selling out, Venture Global began pairing it with capacity on another project, CP2, which has now sold 4 MMtpa (~0.5 Bcf/d) of capacity while moving through the FERC process. The project is under environmental review.

So, our three kings have a combined 117 MMtpa (~15.5 Bcf/d) of LNG capacity in the U.S. that is either existing, under construction or highly likely to reach FID. To put that in perspective, the U.S. now has 90 MMtpa (~12 Bcf/d) of LNG capacity in operation, although it’s never operated simultaneously, as Freeport has been offline since June while Calcasieu Pass has been ramping up production more recently. Cheniere, Sempra and Venture Global will likely soon be exporting more LNG than what’s currently being exported from the entire U.S., so where does that leave anyone else hoping to build a new project or even expand an existing terminal? Well, you better have a good sales pitch because you’re going to be competing with three behemoths who are still growing and there is only so much gas to go around — see (LNG) Will Never Do Without You and our Where It’s At series for more on that topic. Cheniere has pioneered a portfolio approach to selling LNG and operating its terminals. If a hurricane impacts production at Sabine Pass, Corpus Christi can help cover that, while Cheniere has also been selling deals of all lengths through its marketing arm CMI that aren’t tied to any specific terminal or train. That approach has been incredibly popular with offtakers and Sempra and Venture Global seem to be following suit, structuring flexible deals from their respective portfolio of projects or including the optionality to switch between projects. This approach makes it hard for the smaller guys to compete. When Cheniere introduces its next new development, you can bet it will quickly make its way up the queue of prospective projects, so even developments that have made considerable progress toward FID this year risk being squeezed out by one of the three kings if they can’t reach the finish line soon.