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New N. American LNG projects hindered by dearth of contracting, climate concerns

Who is in, who is out among North American liquefaction developers? That is perhaps the biggest unanswered question for the global supply market in 2021. Some projects may advance, some may get delayed further or get scrapped, with new long-term contracting having slowed to a crawl.

Sempra's Energia Costa Azul LNG export project in Baja California was the only such project across the US, Canada and Mexico to be sanctioned in 2020, a year that was supposed to see a wave of new projects move forward. Demand shocks from the coronavirus pandemic and continued commercial struggles were the main barriers.

"It's going to be hard for a greenfield developer to compete with expansion projects at some of the existing facilities, which already have tanks and berths and power and all of the things that are required," Cheniere Energy CEO Jack Fusco said in a recent interview with S&P Global Platts. "I don't know about the rest of the projects, but I'm pleased with our position."

Cheniere has set as a secondary priority in 2021 the sanctioning of its proposal to build an up to 9.5 million mt/year midscale train expansion in Texas. It has elected to focus first on selling the excess capacity it has created at its two US liquefaction terminals and buying back company shares.

For most of the other dozen or so projects actively being developed in the US, Canada and Mexico, securing financing or investment partners will be critical. Sempra's Port Arthur LNG and NextDecade's Rio Grande LNG projects in Texas and Tellurian's Driftwood LNG and Energy Transfer's Lake Charles LNG projects in Louisiana remain in limbo.

Mexico Pacific Limited's proposal to build an up to 12 million mt/year liquefaction terminal on Mexico's West Coast is still in the mix, while in Canada the only major LNG export projects sanctioned in recent years are Shell-backed LNG Canada in Kitimat, British Columbia, and Woodfibre LNG in Squamish, BC. Another half-dozen or so projects on Canada's East and West coasts have been proposed.

S&P Global Platts Analytics is currently tracking 17 LNG export trains that are currently under construction in North America and scheduled to come online through the middle of this decade. These new trains are spread across the US Gulf Coast, Mexico, and Western Canada and will raise total North American LNG export capacity to 16.5 Bcf/d by the middle of the decade, an 80% increase over 2020 levels.

Recent strength in price and demand-side market fundamentals is a positive sign for project developers heading into 2021, though the upside could swing in the other direction come next spring.

The Platts JKM spot price for LNG delivered to Northeast Asia has surged recently above $9/MMBtu, a roughly fivefold increase from historic lows seen in April.

In China, with only modest increases expected in pipeline imports and domestic production this winter, LNG is expected to support overall gas demand growth. Platts Analytics expects imports to increase by 18% year on year November to March. In India, LNG demand has been supported by COVID-induced maintenance and commissioning issues at domestic production fields. While production issues are expected to continue until new fields start up next year, incremental LNG imports will be constrained by limited spare capacity at existing import terminals.

The JKM forward curve is showing strong backwardation implying the market views the current tightness as short-lived, and Platts Analytics sees prices trending lower moving into the first quarter of 2021, particularly if the region experiences another mild winter, as currently expected. Assuming no further large supply disruptions, JKM prices could fall below $6.75/MMBtu by the end of March.

The contracting challenges that many North American exporters and developers have had are compounded by pressure from counterparties, especially in Europe, that have strict carbon emissions reduction goals and are shying away from signing new long-term deals for importing LNG produced from shale gas.

France's Engie recently halted talks with NextDecade about a supply deal tied to Rio Grande LNG, according to Engie. Prior to that, NextDecade had already delayed a financial investment decision until 2021.

In a bid to make its LNG growth plans more environmentally and financially palatable, Sempra recently said it would package 4 GW of renewable assets into a new unit with its existing LNG portfolio and sell a non-controlling stake in the unit. Cheniere is looking at the possibility of buying renewable energy to power the liquefaction trains at its Corpus Christi facility, which is surrounded by wind turbines. The company, however, has no plans to make direct investments in renewable generation.