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'Huge rebound' in demand brightens prospects for US LNG projects

Growing interest among world LNG buyers in long-term contracts could benefit some U.S. export hopefuls that have been struggling to secure new contracts to finance proposed expansions and new terminals, according to an outlook by shipbroker Poten & Partners.

"We're seeing a huge rebound in demand, whether it's short term, medium term, or long term," Sophie Tan, Poten's head of Asia-Pacific business intelligence, said during a March 10 webinar presentation. "And we also see that more [final investment decisions] seem to be on the horizon."

Poten predicted the U.S. share of LNG supply will rise to about 20% by the end of the decade from about 10%, assuming a couple more U.S. projects reach final investment decisions. But significant challenges will remain for LNG developers in building sufficient support to commercially sanction their projects.

"There is room for projects, but they have to be the most competitive," Tan said.

The challenges will include pressure from buyers to be flexible on pricing and contracts terms as well as pressure to bring down project costs. LNG demand is also threatened by increasingly competitive renewables and concerns over carbon emissions, Tan said. A string of announcements has shown growing competition among LNG sellers to offer the greenest supplies.

A lack of final investment decisions in 2020 for new LNG export capacity prompted increased warnings of a supply-demand gap in the mid-2020s. In 2020, only a single LNG export project reached a final investment decision Sempra Energy's Energía Costa Azul terminal on the West Coast of Mexico — after the year began with ample investment in new projects.

In February, Qatar Petroleum announced it had made a final investment decision on a project to expand its LNG production capacity from 77 million tonnes per year to 110 Mt/y. The project could crowd out some rival projects, according to market observers.

Poten's outlook was in line with comments from some U.S. LNG exporters in recent weeks. They have pointed to greater interest among LNG buyers in securing long-term supplies in the wake of significant price swings in global gas markets over the past year. In January, prices for gas in North Asia rallied to record highs due to a severe cold snap, shipping constraints and supply outages at terminals outside of the U.S.

Cheniere Energy Inc., the top exporter in the U.S., cited the volatility as the reason for a new "sense of urgency" among customers. Cheniere is hoping that a rebound in global markets, demand from major Asian consumers, and efforts to make the company's carbon footprint more transparent will boost Cheniere's commercial efforts following a challenging 2020.

Freeport LNG Development LP CEO Michael Smith reported renewed buyer interest in long-term contracts tied to a proposed fourth train at Freeport's export terminal south of Houston.

"You can't just live on the spot," Smith said March 3 at the CERAWeek by IHS Markit energy conference. "We're seeing interest again in long-term contracts for train four because of it, and I think others will too."

IHS Markit is subject to a merger with S&P Global pending regulatory and other customary approvals.