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North American LNG projects to face hurdles related to prices, pipelines

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North American LNG projects to face hurdles related to prices, pipelines

Uncertain conditions in the world market and the need for new pipeline capacity are among the challenges that the "next wave" of U.S. and Canadian LNG export facilities will face, according to Wood Mackenzie's top natural gas analyst Kristy Kramer.

A glut of LNG supplies will remain a risk in 2020 and 2021, and proposed projects will not have the benefit of existing pipelines that can be easily reversed to get their product to the U.S. Gulf Coast, said Kramer, the head of markets, gas and LNG research at the U.K.-based consultant.

Pipelines that have been proposed to take away natural gas produced in shale oil fields in Texas and Louisiana will likely help meet the needs of those projects, Kramer said on a Sept. 4 GasTalk webinar, an online discussion among gas industry professionals. "A lot of the reversal opportunities and expansion opportunities have largely been taken," she said. "We would expect to see additional infrastructure needed to support" proposed Gulf Coast facilities.

Companies like Venture Global LNG, which has proposed the Calcasieu Pass and the Delta LNG liquefaction facilities in Louisiana, are looking at infrastructure to support their projects. The company plans to build a 270-mile pipeline to move gas to Delta LNG when it starts operation sometime around 2023. Venture Global announced in August its final decision to build the Calcasieu Pass facility, which also includes a pipeline. Companies like Kinder Morgan Inc. are developing pipelines from the Permian Basin in Texas that would bolster supplies to LNG projects.

Lower spot LNG prices that have dogged the industry because of a glut of supplies are likely to persist for the next few years. Kramer said it is positive that, despite the price slump, producers have not been forced to pare production.

"Despite the low prices we've seen in the last couple of months, we haven't seen U.S. LNG shut in yet from an economic perspective," Kramer said. "That's a good sign of being able to see that the industry is absorbing that LNG, but we also recognize that there's more supply that's going to be added to the market this year and next. So we're not out of the woods yet."

Oversupply will remain a risk as the market seeks balance, Kramer said. While most projects are underpinned by long-term contracts, some customers of liquefaction facilities are able to take advantage of shorter-term market opportunities.

"Even though volumes may have been bought on long-term contracts, they may ultimately be sold in potentially shorter-term tranches," she said.