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GLOBAL GAS: US LNG supply buildout uncertainty tests global market as Gastech reconvenes


Platts JKM bull run buoys some developers, not others

Latin American demand surge a positive near-term sign

Twenty-one months after the coronavirus erupted, Cheniere Energy is talking aggressively again about LNG expansion in the US.

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As the country's biggest exporter of the super-chilled power plant fuel, Cheniere's assessment of the global market is often a signal of what the industry can achieve more broadly.

Yet even with Asian spot prices quadrupling over the last year and a further surge expected over the winter, new long-term offtake deals for North American supplies have been limited to only a few operators and developers, including Cheniere. Proposed liquefaction sites in Canada and Mexico are getting a fresh look.

Buyers still want shorter terms, pricing flexibility and, more recently, a commitment to reducing carbon emissions. That has caused some US projects to be scrapped, paused or further delayed. The likelihood that the US buildout won't be as extensive as once expected raises the potential for a tighter global supply stack around the middle of the decade. Next week's Gastech, the largest in-person gathering of gas market participants since the pandemic, will address that challenge.

"There's global competition and there is still a decent amount of supply coming online that will be looking for a home and keep the party from getting too out of hand," Michael Webber, managing partner of investment research firm Webber Research & Advisory, said in a telephone interview.

S&P Global Platts Analytics forecasts that average annual US LNG feedgas demand will increase from 10.9 Bcf/d this year to 14.9 Bcf/d in 2026. Currently, there are six major LNG export terminals in operation in the US. That total will rise to seven next year with Venture Global LNG's Calcasieu Pass coming online in Louisiana, and eight by the middle of the decade with ExxonMobil- and Qatar Petroleum-backed Golden Pass LNG coming online in Texas.

Beyond that, the outlook for new US LNG projects is less clear.

In the near-term, Cheniere is the best bet to move forward with its 10 million mt/year Corpus Christi Stage 3 project in Texas. It said Sept. 7 it expects to make a final investment decision in 2022. It already has in place long-term offtake agreements covering 2.55 million mt/year of supply, and it believes it is on track to get the 4 million mt/year of contracts it needs to reach a threshold at which it would be comfortable sanctioning the project.

Tellurian has 9 million mt/year of firm supply deals in place for its proposed Driftwood LNG terminal in Louisiana. That's enough to support the first phase of the project, though the medium-term duration of the transactions, the unique pricing terms and Tellurian's plans to produce its own feedgas could make financing tough to secure.

NextDecade and Venture Global each have announced offtake deals covering a portion of the supply contracts they will need to support their Rio Grande LNG (Texas) and Plaquemines LNG (Louisiana) projects, respectively.

Project delays

Meanwhile, Sempra has further delayed FID on its Port Arthur LNG project in Texas after supply talks with Saudi Aramco fell through and an existing offtake deal with Poland's PGNiG was terminated. Exelon-backed Annova LNG canceled its project in Texas and Canada's Pembina paused development of its proposed Jordan Cove LNG in Oregon.

Freeport LNG in Texas and Sempra's Cameron LNG in Louisiana have yet to sanction expansions proposed at both facilities. Kinder Morgan, which operates Elba Liquefaction in Georgia, the smallest US LNG export terminal, has not mentioned its proposed Gulf LNG project in Mississippi in recent investor presentations, including one on Sept. 9. Last year, an executive said the fully permitted project was unlikely to be developed anytime soon.

Also in 2020, Royal Dutch Shell pulled out of a joint venture with Energy Transfer to develop an export terminal at the site of the Lake Charles LNG regas facility in Louisiana. While Energy Transfer has said it would move forward on its own, it has yet to announce any firm offtake deals tied to the proposed export facility.

"If I had to set an over-under on new projects, I would set it at 2.5," Webber said. "We will likely see one brownfield. I think we will see one greenfield. The question in my mind is, will we see two?"

Latin America consumption

Near-term fundamentals offer some encouragement for the North American supply push boosters.

Global gas markets have continued their bullish but volatile trend with the Platts JKM and Dutch TTF hitting fresh highs in August, putting Asian spot LNG prices through the coming season well above traditional oil-indexed contract prices as well as oil-parity levels, according to Platts Analytics. The bull run has continued into September, with JKM recently trading above $20/MMBtu.

On the end-user side, Latin American LNG demand has hit a new record, closing out August at over 100 million cu m/d on the back of declining upstream production and depleted hydro reserves. The extremely dry conditions in Brazil this year could have a carryover effect into 2022, even if rainfall returns, keeping imports supported roughly 15 million cu m/d above the pre-drought forecast, Platts Analytics data show.