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Global LNG buyers, sellers look to bridge differences

Houston — LNG industry leaders from the US, Europe and Asia said Wednesday there is an urgent need to bridge the gap between buyers and sellers, which has stalled the advancement of liquefaction projects that would fill a potential supply shortage expected by the early to middle part of the next decade.

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The discussion during the CWC World LNG & Gas Series Americas Summit in Houston comes at a pivotal time for the LNG market.

Following two years during which few new projects have been sanctioned, US developers will be making decisions over the next several months and into 2019 whether to build, delay or scrap their terminal projects, mostly planned for along the Gulf Coast. Whereas fears of an oversupplied market held back projects in the past, today the key considerations are length and price of contracts.

"The question is, who will blink first?" said Akos Losz, a senior research associate at Columbia University's Center on Global Energy Policy. "If the buyers blink, then we go back to the long-term deals."

He cited as good news for the traditional 20-year term model recent supply deals announced by Cheniere Energy that will help finance a third liquefaction train at its Corpus Christi export terminal, where the first two production units are currently under construction.

"It's a bit too early to tell whether it's a long-term trend or a blip," Losz said.


He said if suppliers blink, they might be willing to accept short- or medium-term deals, or if buyers still don't bite, developers might have to get creative and find some other way to secure financing for their projects.

"If none of this happens, we might find ourselves in a pretty bad situation where we have a supply gap and high prices actually destroy demand," Losz said.

An executive for US LNG export developer NextDecade, Patrick Hughes, said at the conference that the company wouldn't be able to finance its proposed terminal in Brownsville, Texas, with supply contracts as short as six years, though it might be comfortable in the 15-year time range.

The conference provided an opportunity for terminal developers and potential customers to discuss a middle ground.

There was widespread agreement among attendees that the supply and demand fundamentals are forecast to line up in the 2021-2023 timeframe, provided sufficient infrastructure comes online by then. Regulatory, financing, and economic and trade policies, including US plans to impose tariffs on imported steel and aluminum, are among the hurdles attendees cited.

"At the Department of Energy, we appreciate direct and specific examples of the impact of the tariffs on energy infrastructure projects in the United States," Rob Smith, the agency's deputy assistant secretary for oil and natural gas, said at the conference.

A US law, the Jones Act, which prohibits foreign-flag vessels from transporting LNG from one US port to another US port, also leads to limiting market potential for domestic producers.

That means a tanker picking up a cargo at Cheniere's Sabine Pass export terminal in Louisiana can't deliver the gas to New England, which periodically imports LNG to meet its gas needs. There are no large-scale LNG tankers in the US fleet today that can handle that trade.

But Smith said he believes that New England's aversion to new gas pipeline infrastructure is more of a factor in the supply constraints the region sees during peak demand periods, and why it relies in part on foreign-produced LNG.

"Part of those shipments into Everett, from my perspective, speaks to an increasingly liquid LNG market, trade that no one was anticipating in the past," Smith said. "The challenges of getting gas into Boston are, in my opinion, related to NIMBY (Not In My Back Yard) more than the Jones Act."


In the meantime, there are some positive signs for US exporters, and by extension for the global LNG supply market.

Cheniere is preparing to make a final investment decision on its proposed third train at its Corpus Christi facility. It has previously said it has secured sufficient commercial commitments to support construction of the train.

Financial documents and related work are all that remains to be finished. The company also is seeking commercial support for a proposed sixth train at Sabine Pass.

During the conference, Anatol Feygin, Cheniere chief commercial officer, said the company was in a "three-point stance to take FID" on Corpus Christi Train 3. He said during a question-and-answer session that another "six to eight weeks" of work toward reaching FID remains.

"It behooves us to get it done by the middle of this year, and we are working hard to do that," Feygin said in a brief interview after his remarks.

--Harry Weber,

--Edited by Jim Magill,