Big Wave - A Tsunami of New LNG Export Capacity Is Coming, With Broad Implications For Gas Markets

Wednesday, 07/03/2024Published by: Housley Carr  rbnenergy.com

*To read the full article with graphs, use this link:  https://rbnenergy.com/big-wave-a-tsunami-of-new-lng-export-capacity...

The U.S. Gulf Coast is poised to experience another big wave of new LNG export capacity, and this time it will be joined by new capacity coming online in both Mexico and Canada. The more than 13 Bcf/d of incremental natural gas demand from North American LNG projects starting up over the next five years will have significant effects on U.S. and Canadian gas producers, gas flows and (quite likely) gas prices, which have been deeply depressed for more than a year now. In today’s RBN blog, we provide updates on the 10 LNG export projects in very advanced stages of development in the U.S., Mexico and Canada, detail the expected ramp-up in LNG-related gas demand and discuss the potential impact of rising LNG exports on gas prices. 

The Biden administration’s late-January announcement of a temporary pause in approving new LNG export licenses to non-Free Trade Agreement (non-FTA) countries — or extending existing licenses, barring special circumstances — grabbed headlines and raised energy-industry hackles. But while the pause has cast a shadow over several LNG export proposals nearing final investment decisions (FIDs), it has had little or no impact on the long list of projects with those Department of Energy (DOE) export licenses already in hand. In fact, as we said in How Do You Like Me Now?, the pause may well have a positive effect on a few U.S. and Mexican projects that already have non-FTA licenses — as well as Canadian projects that don’t need them — but had not yet received a final go-ahead from their developers.

(Two quick sidebars: First, a long list of major LNG-importing countries and regions fit into the non-FTA category, including the U.K., the European Union (EU), Japan, China, India, Brazil and Argentina. Second, a federal court judge in Louisiana on July 1 ordered that the pause be “stayed in its entirety, effective immediately,” but it’s unclear what the practical effects of that ruling will be.]

In any case, there is a long list of North American LNG projects — large, medium and small — that have reached FID and are either under construction or about to enter that phase. We’ll start with the U.S., which already has 12 Bcf/d of LNG export capacity in operation and is expected to add another 6.4 Bcf/d by early 2026 and an additional 3.9 Bcf/d in 2027-29 (see Figure 1 below). That would put U.S. LNG export capacity at more than 22 Bcf/d by the end of this decade.

As you can see, the 10.3 Bcf/d in incremental LNG export capacity slated to start up over the next five years is tied to five FID-ed projects, all of which are under construction. Here’s more on those five projects:

• Venture Global’s 2.6-Bcf/d Plaquemines LNG (pronounced PLACK-a-min), which is located 20 miles south of New Orleans in Plaquemines Parish, LA. The first of the project’s 36 modular “mini-trains” are expected to begin commissioning in the back half of this year and the entire facility is expected to be fully online in 2026.
• Cheniere Energy’s Corpus Christi Stage 3, whose seven midscale modular trains will have a combined capacity of 1.4 Bcf/d. The project is an expansion of Cheniere's existing Corpus Christi LNG facility. Cheniere said in a mid-June presentation that construction of Stage 3 is more than 60% complete and ahead of schedule. It also has said that initial LNG production is likely by the end of this year and that all seven trains should be up and running by late 2025 or early 2026.
• The three-train, 2.4-Bcf/d Golden Pass LNG in Sabine Pass, TX, which is co-owned by a 70/30 joint venture (JV) of QatarEnergy and ExxonMobil. The project’s co-developers expect the commissioning of Train 1 to begin in the first half of 2025, followed by the start-up of Train 2 in late 2025 and Train 3 in early 2026. However, the pace of work going forward may be impacted by lead EPC contractor Zachry Group’s late-May filing for federal bankruptcy protection, a move the builder tied to “significant financial strain” from ongoing project-cost battles with QatarEnergy and ExxonMobil. Zachry said in its filing that it was exploring a “structured exit” from the project and that its construction partners on the job — Chiyoda Corp. and McDermott International — were continuing work. It remains to be seen if the matter will affect Golden Pass’s timeline. [Note: in March 2020 the DOE granted Golden Pass a 17-month extension on the project’s non-FTA export license, to September 2025. Whether a further extension might be needed is TBD.]
• NextDecade Corp.’s three-train, 2.1-Bcf/d Rio Grande LNG project in Brownsville, TX. Train 1 is scheduled to come online in mid-2027, followed by Train 2 in early/mid-2028 and Train 3 in late 2028 or early 2029.
• Sempra Infrastructure and ConocoPhillips’ two-train, 1.8-Bcf/d Port Arthur LNG. The project is also on schedule, with Train 1 slated to start up in the second half of 2027 and Train 2 to follow suit in the first half of 2028. Note: In April 2024, a couple of months after the Biden administration announced its pause in approving non-FTA export licenses, DOE granted a 25-month extension to Port Arthur's license, giving that project until June 2028 to come online. In its decision, the department noted that the project was already under construction — an extenuating circumstance that justified the extension.

Next, we’ll look at the Mexican LNG projects in advanced stages of development — one was recently finished, actually, while the other is nearing completion. While these projects are located “south of the border,” they will depend on U.S. gas supplies (mostly from the Permian and Eagle Ford), so they need DOE export licenses if they plan to send LNG to non-FTA countries.

Sempra is well along in the construction of a 0.3-Bcf/d liquefaction train at its Energía Costa Azul LNG — aka ECA — in Baja California, a facility initially developed as an LNG import terminal, and expects to bring that train online in mid-2025. (ECA has a non-FTA export license.) New Fortress Energy recently finished building Altamira LNG, a new, 0.4-Bcf/d export terminal along Mexico’s East Coast that still does not have a non-FTA export license. New Fortress has been saying for some time now that its first LNG shipment is imminent — without the DOE license, destination possibilities might include Puerto Rico (the project is exempt from the Jones Act) or a trio of nearby LNG-importing countries that have Free Trade Agreements with the U.S.: the Dominican Republic, Panama and Colombia.

And then there’s Canada. There are three FID-ed LNG export projects in Canada, both in British Columbia (BC). Each of the projects will export natural gas produced in BC or Alberta and therefore do not need any U.S. licenses or other approvals. The largest — and furthest along — is LNG Canada, a two-train, 1.8-Bcf/d project located in Kitimat, BC. The project is being co-developed by an international consortium that includes Shell Canada (with a 40% stake), Petronas (25%), PetroChina (15%), Mitsubishi (15%) and KOGAS (5%). Both trains at LNG Canada are expected to come online in mid-2025.

Also in British Columbia, Woodfibre LNG, a 0.3-Bcf/d project in Squamish that is 70%-owned by Pacific Energy and 30%-owned by Enbridge, is in the very early stages of construction. The project, whose LNG output will go to BP, is expected to start up by 2028. And then there’s the latest entrant: the 0.4-Bcf/d Cedar LNG — also in Kitimat — whose JV partners (Pembina Pipeline and the Haisla Nation) took FID on the floating, single-train project in late June. (The project appears to have benefited from the U.S. pause in issuing export licenses.) The JV expects Cedar LNG to begin commercial operation in late 2028. Assuming all three projects start up as planned, Canada could send out 2.5 Bcf/d of LNG by 2029.

The new LNG export capacity coming online in North America over the next few years is sure to have a significant impact on gas production, gas flows and gas prices — in both the U.S. and Canada. Given that all the U.S.’s incremental export capacity is located along the Gulf Coast, gas produced at crude oil-focused wells in the Permian — often selling at negative prices at the Waha Hub lately — will have new outlets, which should have a positive effect on gas prices there. (The Permian will also be a primary supplier to the new LNG export facilities in Mexico.) In a similar vein, demand for gas produced in Western Canada’s Montney shale play will increase as LNG Canada, Woodfibre LNG and Cedar LNG start up, likely resulting in a further reduction in pipeline-gas exports from Western Canada to the U.S. Less gas coming in from the north also could support stronger U.S. gas prices — something producers would welcome after more than a year of sub-$3/MMBtu Henry Hub prices.

A couple more things. First, higher LNG exports may reduce the spread between U.S. gas prices and international markers like the Title Transfer Facility (TTF), with the obvious caveat that there will always be the transport arb, so U.S. prices will remain below those in international markets due to shipping costs. Second, in the longer term, more U.S. LNG exports may require more production from gas-focused plays like the Haynesville, which may require higher gas prices.