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Second wave of US LNG to be based on 'free' gas: NextDecade Corp

The 'second wave' of US LNG production is coming in the early 2020s andwill be based on essentially free gas, according to project developersNextDecade Corp.

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Speaking at the CWC LNG Summit in Lisbon Thursday, NextDecade CEOKathleen Eisbrenner said her company had "the lowest cost, reliable LNGproject in the world," and that it would be "the leader of the second wave ofUS LNG."

That US LNG can be the world's lowest cost is a big claim, especiallywhen set against the riches of Qatar's North Field and Iran's geologicallyconnected South Pars. This giant gas accumulation produces large quantities ofnatural gas liquids (NGLs), which effectively underpins the production of LNGwith large economies of scale.

However, similar claims are being made by NextDecade about US LNG, aswell as by another US second wave development company Tellurian.

The basic argument is that gas output from the Permian basin, the USshale oil industry's hottest hot spot, is going to rise hugely, not because itis necessarily wanted, but because it will be produced as associated gasalongside the oil.

According to Eisbrenner, drilling and completion spending in the Permianbasin will double year-on-year in 2018 to make up 44% of all US D&C spending,up from just 20% in 2014.

The gas produced cannot be reinjected, and it cannot be flared for morethan very short periods. It must, therefore, be evacuated. Producers will payfor it to be taken away.

Eisbrenner said that gas production in the Permian Midland would have abreakeven cost of negative $6.31/MMBtu. She estimated breakeven for gasproduction in the Permian Delaware at negative $2.69/MMBtu.

Whether or not these calculations really stand up to scrutiny, theprospect of big increases in Permian basin gas production has prompted aplethora of new pipeline proposals to take that gas to a market or a pointwhere markets can be accessed.

Four projects, with total capacity of 6.4 Bcf/d, have been proposedbetween Waha and Agua Dulce on the Gulf Coast, but the gas will still need tobe used and, most likely, liquefied for export.

Eisbrenner is promoting Rio Grande, a huge 27 million mt/year LNGdevelopment near Brownsville based on six 4.5 million mt/year LNG trains.

She says that, if the company builds two trains, costs will be $500/mt.If three trains are approved, costs would fall to $450/mt.

Process optimization using well proven, reliable technology will ensureboth lowest cost capital and operational expenditure, in a location thatcarries much less geopolitical risk than either Iran or Qatar, she said.

--Ross McCracken, ross.mccracken@spglobal.com

--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com