King Creole - The 'Big Three' of U.S. LNG Look to Press Their Advantage, Push More Projects to FID

Monday, 06/12/2023Published by: Lindsay Schneider  rbnenergy.com

Link to full article including charts: https://rbnenergy.com/king-creole-the-big-three-of-us-lng-look-to-p...

Three new LNG export projects have reached a final investment decision (FID) in the past year or so — Venture Global’s Plaquemines LNG, Cheniere’s Corpus Christi Stage III expansion, and, most recently, Sempra’s Port Arthur LNG. What do these projects have in common? They are all being developed by companies that are already exporting North American LNG. These companies are arguably the “Big Three” of U.S. LNG, with Cheniere the reigning king, at least for now. Not only do they all have at least one operating terminal and at least one under construction, but all three have multiple pre-FID projects under development, including some that are decently close to FID. With their proven track records and deep balance sheets, being one of the big guys is a definite advantage when it comes to getting a project across the finish line. With a total of 43.5 MMtpa (5.8 Bcf/d) of capacity currently under construction and more than 100 MMtpa (13.4 Bcf/d) under development by these three, is there even room for anybody else? In today’s blog, we look at the pre-FID projects under development by the Big Three, starting with Sempra.

With global energy markets bouncing back in 2021 and 2022, and Europe’s energy fallout from the Ukraine war, there is a new wave of interest in developing U.S. LNG. After a deep lull and a lack of progress due to oversupplied markets in 2019 and the COVID-19 pandemic in 2020, existing terminals are operating above their contracted levels, new projects are being announced, and long-term capacity is being sold. Many projects have begun to progress and appear to be headed toward an FID, but so far, only the Big Three have been able to actually make it. RBN first broached the dominance of these three companies back in December (see We Three Kings), at which point Venture Global had already taken FID on Plaquemines Phase 1, as had Cheniere on Corpus Christi Stage III. High interest rates, cooling global prices, and regulatory uncertainty (see Life in the Fast Lane for more on recent rule changes) have dampened enthusiasm — or at least slowed progress — for many projects that had appeared close to FID last year. But Cheniere, Venture Global and Sempra have continued to make progress on their projects, and in the case of Cheniere, have announced new ones, even as projects by others have stalled. Since our December blog, Venture Global took FID on Plaquemines Phase 2 and Sempra on Port Arthur. Beyond these FIDs, each of these companies has continued to advance its next round of projects as well.

Sempra currently has one terminal operating, Cameron LNG (solid purple diamond in Figure 1 below) in Louisiana. The three-train terminal can export 12 MMtpa (1.59 Bcf/d) of LNG. In addition to Cameron, Sempra currently has two FID projects under construction — Port Arthur LNG (striped orange diamond), the most recent U.S. project to reach FID, and ECA LNG (striped blue diamond), the only North American LNG project to take FID in 2020. The ECA LNG terminal will consist of a single, 2.5-MMtpa (0.33 Bcf/d) train in Baja California on the Pacific coast of Mexico and is expected to begin producing LNG in 2025. This will be Mexico’s first LNG export terminal, at least on land, as New Fortress Energy’s Altamira floating LNG (FLNG) project is expected to come online later this year. ECA LNG is underpinned by tolling agreements with TotalEnergies and Mitsui (see Figure 2 for details). Sempra’s next U.S. terminal will be Port Arthur LNG (for more on Port Arthur see Jump in the Line, Part 5) in southeastern Texas. Sempra took FID on Phase 1 of the terminal in March. The project will consist of two large trains with a combined nameplate capacity of 13.5 MMtpa (1.8 Bcf/d). It is expected to begin producing LNG in 2027.

Port Arthur represents a shift in Sempra’s contracting strategy for LNG. Both Cameron and ECA LNG are fully subscribed with long-term tolling agreements, but Port Arthur will utilize a combination of tolling agreements as well as LNG sold Free On Board (FOB). Tolling agreements were extremely popular in the first wave of LNG development, with only Cheniere opting for a different model. Newer projects under development have increasingly opted for FOB sales (see Steady as She Goes, Part 2, for more on the difference between FOB and tolling). ConocoPhillips holds a 30% equity stake in the terminal and a 5-MMtpa (0.66 Bcf/d) tolling agreement, but the remaining capacity has been sold FOB to European offtakers (see Figure 2 for details). Once ECA LNG and Port Arthur Phase 1 are operational, Sempra will have 28 MMtpa (3.7 Bcf/d) of LNG capacity, but has its sights set higher with expansions of its existing and under-construction terminals as well as a new Mexican terminal.

Sempra’s next LNG project, also likely the next U.S. project to take FID, is an expansion of the Cameron terminal. Cameron Phase 2 (white diamond with purple outline; 7 MMtpa, 0.93 Bcf/d) will include a fourth train for the existing terminal as well as debottlenecking work at the existing three trains. The debottlenecking is already underway and expected to add 1 MMtpa (0.13 Bcf/d) of capacity, which would be available in stages prior to Train 4’s completion. The new train will have a capacity of 6 MMtpa (0.79 Bcf/d), which is larger than the existing trains at the terminal. The project has been around for a while, but after the COVID-19 pandemic, Sempra opted to change the design specs of the project, switching from a two-train project to one larger train, using the greener, all-electric drive design. This required some amendments to the project’s Federal Energy Regulatory Commission (FERC) approvals, which Sempra now has.

The capacity is secured under non-binding heads of agreement (HOA) — 75% of the debottlenecking capacity and 50% of the Train 4 capacity will go to Cameron’s existing offtakers. Sempra will market the remaining capacity by itself and is targeting FOB sales. Currently, it has a non-binding HOA with PKN Orlen (formerly PGNiG) for an undisclosed amount. Terms of all deals are still being negotiated and a final breakdown of capacity may not be announced until closer to or along with the FID. Although not yet binding, the deals for this project are very credible and Sempra has been working with the existing terminal’s offtakers throughout this process. Front-end engineering design (FEED) work for the project is ongoing and is expected to be completed later this summer, with an FID later this year. Sempra will need to take FID soon if it wants to steer clear of any drama with its Department of Energy (DOE) permits given the recent regulatory changes. The project needs to export LNG (commissioning cargoes count) by May 2026 to maintain its current export license. Further down the line, Sempra has a planned expansion of the Port Arthur terminal (white diamond with orange outline in Figure 1), adding an additional one or two trains (6-13 MMtpa, 0.79-1.72 Bcf/d) to the under-construction terminal.

In addition to the U.S. projects, Sempra has two proposed projects in Mexico, a 12-MMtpa (1.59 Bcf/d) expansion of the under-construction ECA LNG (white diamond with blue outline in Figure 1) as well as the 2-MMtpa (0.26 Bcf/d) Vista Pacifico project in Sinaloa (white diamond with green outline in Figure 1). Sempra is uniquely positioned when it comes to Mexican LNG, as not only does it have experience operating LNG from its U.S. terminal but it has a long history of doing business in Mexico and owns and operates pipeline infrastructure there. The Vista Pacifico project is backed by non-binding agreements with Total and Mexico’s state-owned energy company, CFE. ECA LNG has non-binding agreements in place with ConocoPhillips and the project’s Phase 1 offtakers, TotalEnergies and Mitsui. Feedgas for the Mexican projects will come from the U.S. (largely Permian gas), but pipeline infrastructure becomes a bit more of an issue on the Mexican side of the border depending on the exact location and size of the terminals. It’s simply not as robust a gas grid as we have in the U.S., but again this may favor Sempra projects over some competitors as it owns and operates pipeline infrastructure near both proposed LNG sites.

Sempra is currently focused on getting Cameron Phase 2 to the FID stage, which it appears to be close to doing, and that would take Sempra’s LNG export capacity to 35 MMtpa (4.6 Bcf/d). After that, it can shift focus to Port Arthur Phase 2 or one of the Mexican projects. But all of that will have to compete with the 67 MMtpa (8.9 Bcf/d) of capacity proposed by Cheniere and Venture Global, not to mention the numerous other projects under development by other companies hoping to break into the U.S. LNG sector. It remains to be seen what the global appetite for U.S. LNG is, but although it has slowed, it doesn’t appear that we’ve seen the last project to take FID this year. In Part 2, we’ll take a closer look at projects under development by Cheniere.