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US LNG WEEKLY: Liquefaction facilities near full utilization amid robust demand

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US LNG WEEKLY: Liquefaction facilities near full utilization amid robust demand

Highlights

FOB Gulf Coast cargo values gain week on week

Lake Charles LNG inks deals; Driftwood LNG begins work

US LNG export terminals churned near full capacity during the week ended March 29 -- with feedgas demand averaging 13.1 Bcf/d -- amid sustained European demand.

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FOB Gulf Coast cargo values rose week on week, after two straight weeks of declines.

Persistently high spot LNG prices have spurred new long-term fixed-price commercial deals with US suppliers in recent months.

In the latest move, Energy Transfer said March 29 that its proposed Lake Charles LNG export terminal in Louisiana will supply 2.7 million mt/year of volumes to China's ENN and affiliates under two long-term agreements. Nearby, Tellurian's proposed Driftwood LNG said March 28 that it began construction at its Louisiana site.

S&P Global Commodity Insights assessed the Platts Gulf Coast Marker for FOB cargoes loading 30 to 60 days forward at $31.450/MMBtu March 29, $2.850/MMBtu higher week on week, with Europe as the best netback following a brief flip to Asia following an earthquake in Japan March 16 that raised concerns about power supplies there.

The strong feedgas demand during the week was driven by high utilization at all seven major US liquefaction facilities. The newest of the US liquefaction facilities -- Venture Global LNG's Calcasieu Pass -- began production in January and shipped its first cargo March 1, with commissioning cargoes being exported steadily since then. About 56% of the average US feedgas demand during the most recent week was from Cheniere Energy's two facilities -- Sabine Pass Liquefaction in Louisiana and Corpus Christi Liquefaction in Texas.

The 20-year sale and purchase agreements announced by Energy Transfer were the first ones tied to Lake Charles LNG to be disclosed. Energy Transfer has said it may reduce the size of the project to two trains with 11 million mt/year of LNG capacity, from three trains with 16.45 million mt/year of capacity.

Under the commercial agreements, Energy Transfer is expected to supply 1.8 million mt/year of LNG to ENN Natural Gas and 900,000 mt/year of LNG to ENN Energy, on an FOB basis. The purchase price will be indexed to the US Henry Hub, plus a fixed liquefaction charge, Energy Transfer said in a statement. Financial terms were not disclosed. First deliveries are expected as early as 2026, subject to conditions, including Energy Transfer reaching a positive final investment decision on Lake Charles LNG.

At Driftwood LNG, Tellurian gave its contractor the go-ahead to begin construction of the first phase of the project. The notice to proceed to Bechtel was limited; Tellurian is still finalizing financing for the up to 27.6 million mt/year facility. Following 10-year agreements with Gunvor, Vitol and Shell, total offtake commitments to Driftwood LNG stand at 9 million mt/year. That's enough, Tellurian has said, for the two-plant first phase of the project. Each plant is expected to have up to four liquefaction trains.

The deals Tellurian signed to support the first phase of Driftwood LNG are indexed to a combination of the Platts JKM, the benchmark for spot-traded LNG delivered to Northeast Asia, and the Dutch TTF European gas hub contract, netted back for transportation charges. The LNG would be delivered free on board from Driftwood. Tellurian plans to produce its own feedgas for the first phase of the terminal -- currently it is well short of the upstream production necessary to guarantee that.

The shorter length of Tellurian's commercial deals than the traditional 20-year agreements that were used to finance the first wave of US liquefaction terminals and the pricing mechanisms underlying Tellurian's agreements have raised questions in the market about the company's ability to obtain financing.

In a podcast posted on Tellurian's website March 29, Executive Chairman Charif Souki said the company expected to finalize discussions over debt financing and a $4 billion equity raise within 90 days, and then would be "off to the races with the full project."