Houston — As they face competitive pressure to lower the price for their offtake, developers of the second wave of US liquefaction capacity are being increasingly pressed by buyers to provide project certainty and make terms more flexible.
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The three export terminals preparing to start up in the coming weeks and months - Sempra Energy's Cameron LNG, Freeport LNG and Kinder Morgan's Elba Liquefaction -- have all been beset by delays, primarily resulting from construction and weather-related issues. The snags often mean higher costs for contractors, and the change in timing can impact the global supply of LNG and, thus, prices.
That history, and ongoing concerns about the pace at which US regulators are approving new permits, has led buyers in Asia, Europe and Latin America to be more selective in whom they sign long-term contracts with among the next wave of projects that are expected to come online in the early to mid-2020s. None of the three projects proposed for Brownsville, Texas -- NextDecade's Rio Grande LNG, Texas LNG and Exelon's Annova LNG -- has yet to announce any firm offtake deals.
"When we're talking to buyers, what's important to them is flexibility," NextDecade CEO Matt Schatzman said in a telephone interview.
NextDecade expects to receive a permit decision from the Federal Energy Regulatory Commission in July. Commercial operations are targeted to begin in 2023.
In the meantime, it is looking to secure a new contractor and to prove commercial viability. NextDecade has said it remains on track to announce at least one firm long-term contract by the end of March, and shore up additional contracts in the second and third quarters to support initial construction of up to three liquefaction trains. The developer also is sticking to its plan to make a final investment decision in the third quarter.
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The other two Brownsville projects are also trying to gain momentum in a crowded field of second wave developers.
Last week, Texas LNG received its final Environmental Impact Statement from FERC. In December, Annova LNG said it was in the process of securing enough firm supply of feedgas to serve its terminal as it seeks to build commercial support to be able to advance to construction.
While the three Texas projects have yet to announce binding long-term contracts, new pipeline infrastructure that Kinder Morgan and other operators are planning to connect gas from the Permian Basin with the Agua Dulce trading hub offer hope the terminals will have access to cheap feedgas, aiding talks with offtakers.
Keeping costs down will be key to NextDecade's success, especially as it continues to work to secure a contractor to build its terminal -- by far the largest planned by the three Brownsville developers -- after a previous deal fell through. Bids are due next month.
Meeting timelines will be important. While the three US projects that are preparing for startup have faced delays, three other projects currently operating were delivered on time or ahead of schedule.
"I'd say from the US perspective, we're batting about .500, maybe a little better," Schatzman said.
-- Harry Weber, Harry.Weber@spglobal.com
-- Edited by Annie Siebert, email@example.com