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As North American LNG export projects gear up for 2017, the open question is whether the rest of the world is ready for this influx of supply.
For the expanding roster of companies vying to export LNG, it will be a year of watching domestic policy and overseas demand shifts. With incremental U.S. export capacity expected from two additional liquefaction trains at Cheniere Energy Inc.'s Sabine Pass and the coming online of the Dominion Cove Point LNG LP export terminal, developers and industry observers will be waiting to see how the long list of planned projects will fit into the global marketplace.
Even with competition from these behemoths, other LNG prospectors looking to score amid what is now an oversupplied market are winning financial support and regulatory approvals. The massive balance sheet of Total SA should help Tellurian Investments Inc. when it comes time to nail down financing for the proposed 26 million-tonne-per-annum Driftwood LNG liquefaction and export terminal, analysts said.
Total and Tellurian said in a joint statement Dec. 20 that Total will buy a 23% stake in Tellurian for $207 million to help secure U.S. natural gas supply and deliver LNG from the Driftwood terminal proposed for Calcasieu Parish, La. Cheniere founder and ex-CEO Charif Souki started Tellurian with Martin Houston, the former CEO of Parallax Enterprises LLC, after billionaire activist investor Carl Icahn ousted Souki from his role at Cheniere in December 2015.
Total will bring to the table the creditworthiness that comes with being a global energy company, which will provide a boost when Tellurian taps markets to secure funding for the liquefaction and export terminal, Raymond James & Associates Senior Vice President Pavel Molchanov said in a Dec. 20 interview. "The most important thing is Total's balance sheet and the ability to get financing. ... This is the balance sheet of a $100 billion, A-rated oil giant."
Meanwhile, the developer of the Plaquemines LNG export terminal is preparing to invest $8.5 billion in the Louisiana project, which is expected to send an official application to FERC after the new year. The project is being proposed for a site about 20 miles south of the Port of New Orleans. The liquefaction and export facility would consist of 20 modular units, each capable of producing about 1 million tonnes per annum.
Louisiana Gov. John Bel Edwards and Venture Global LNG executives announced the price tag in a Dec. 21 statement. Venture Global Plaquemines LNG LLC and Venture Global Gator Express LLC said in a monthly status update that a formal application for the terminal and associated pipeline is now expected in late January.
"The long-term prospects for the U.S. natural gas industry are bright, and Louisiana is well-positioned to capitalize on that success with ready access to natural gas supplies and deepwater access for shipping LNG to destinations worldwide," Edwards said in the statement.
FERC recently granted authorization to Golden Pass Products LLC to build and operate the approximately $10 billion, 15.6 million-tonnes-per-annum LNG export terminal near Sabine Pass, Texas. In the same Dec. 21 order, FERC authorized affiliate Golden Pass Pipeline LLC to build a related natural gas pipeline expansion project that will make the system bidirectional and will allow it to move up to 2.5 Bcf/d of gas to the export terminal.
"This is an important milestone for Golden Pass and another stepping stone in the development of the US LNG industry," Charlie Riedl, executive director of the Center for Liquefied Natural Gas, said in an emailed statement. "Having waited for over two and a half years to secure its FERC approval, we hope the Department of Energy will waste no time in reviewing Golden Pass' application to export to non-FTA countries, so that the developers can move ahead with realizing this important project."
The beginning of 2017 will see President-elect Donald Trump assume office, but not much is certain about what his administration will mean for LNG. Although Trump has promised an infrastructure-friendly administration, his stance on LNG exports is less definitive.
The president-elect has historically opposed international trade deals, and if this protectionist agenda makes its way into the White House, the process for exporting LNG to countries lacking free trade agreements with the U.S. may have challenges. For instance, LNG companies may be hesitant to sign off-take agreements with countries such as Japan, which is not an FTA country but would have been part of the Obama administration's Trans Pacific Partnership. Trump has repeatedly said he will withdraw from the 12-country trade partnership, which still has not been ratified.
But overall, a Trump administration will likely be "very good for energy," said Susan Sakmar, a visiting professor at the University of Houston Law Center and author of Energy for the 21st Century: Opportunities and Challenges for LNG. "I think he'll quickly learn and be in favor of LNG exports."
One way LNG exports could get a boost is through legislation that would speed up the U.S. Department of Energy's process for approving a project to export LNG. Though the provision died along with a larger energy bill earlier in December, Republicans who favored the measure could simply wait until the new Congress to pass a bill that includes more of their agenda.
A boost to LNG prices could come from OPEC's recent decision to cut oil output. Global LNG prices are likely to see some movement since many international LNG prices are pegged to oil, said Andrew Slaughter, executive director of the Deloitte Center for Energy Solutions.
There is a growing proportion of U.S. LNG that is not reliant on long-term contracts and instead is priced depending on near-term supply and demand, Slaughter noted. It will be these volumes that could see some price increases following OPEC's production cut, since spot prices will likely be supported by oil-linked LNG contracts.