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US LNG projects face significant challenges as they enter 2020

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US LNG projects face significant challenges as they enter 2020

After a year of federal approvals for U.S. LNG export projects, the beginning of 2020 holds serious hurdles for the remaining proposals, such as environmental opposition, global LNG oversupply and weak gas prices.

Three LNG export projects proposed for the area around Brownsville, Texas, face challenges to their federal authorizations from a coalition of environmental groups, fishermen and other community interests.

The Brownsville Ship Channel projects are part of a wave of U.S. Gulf Coast LNG proposals that cleared the Federal Energy Regulatory Commission review process in 2019 and that now vie for the off-take contracts that help finance construction. On Nov. 21, 2019, FERC approved the Exelon Corp.-backed, 6-million-tonne-per-annum Annova LNG Brownsville project; Texas LNG Brownsville LLC's project, authorized for 4 mtpa and expected to include 2 mtpa in the first phase; and NextDecade Corp.'s Rio Grande LNG project, a terminal with a total design capacity of 27 mtpa. (FERC dockets CP16-480, CP16-116 and CP16-454)

Compared with other large LNG projects, the Brownsville projects have encountered more robust and organized opposition over environmental and economic issues in the commission's review.

Meanwhile, market observers agreed that the window for independent projects to advance to construction is rapidly closing, which could make 2020 a possible shakeout year for the dozen or so projects around the country.

"It's getting late. It's getting dark. It's much tougher," said Michael Webber, an independent LNG analyst and managing partner at Webber Research & Advisory.

The picture is especially dark for projects that have not yet announced any firm long-term supply contracts. These proposed facilities include the Royal Dutch Shell PLC and Energy Transfer LP-backed Lake Charles LNG project in Louisiana, LNG Ltd.'s Magnolia LNG project in Louisiana, Pembina Pipeline Corp.'s Jordan Cove LNG project in Oregon, Kinder Morgan Inc.'s Gulf LNG project in Mississippi, and the Texas LNG LLC project in Brownsville.

Developers face headwinds that include depressed global gas prices, oversupply and the still unresolved U.S.-China trade war. An initial agreement between the two countries to hold off on additional tariffs and roll back some tariffs did not bring any immediate relief to the LNG market. China's 25% tariff on imports of U.S. LNG has remained. Against that backdrop, no U.S. LNG has been delivered to China since March 2019, and long-term contracting between U.S. developers and Chinese counterparties is effectively stalled.

U.S.-based LNG companies may find relief in India, the third-biggest energy consumer after the U.S. and China. In one positive sign, state-owned gas utility GAIL (India) Ltd. said it plans to import 90 LNG cargoes, or about 5.8 million tonnes of LNG, from the U.S. in the fiscal year ending March 31, 2021.

The amount is almost the same volume as the company expected to import in the current fiscal year that runs through March 2020, company officials said Dec. 30, 2019. This is more than the 75 cargoes, or about 5 million tonnes of U.S. LNG, that the utility had planned to import at the start of the current fiscal year that began April 1, 2019, mainly to cater to additional demand from the fertilizer sector. GAIL imported 62 cargoes of U.S. LNG in the last fiscal year from April 2018 to March 2019.