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This LNG Player Could Leave Lumbering Competitors In The Dust

This LNG Player Could Leave Lumbering Competitors In The Dust

US companies have been scrambling over the past few years to build new export terminals for liquefied natural gas (LNG). But just as the first is nearing completion, one company wants to forgo the onshore liquefaction concept altogether and move offshore.

The US is nearing the point when it will start exporting natural gas, which Bloomberg says will “change the global LNG market forever.” US LNG could undermine the practice – particularly in Asia – where supply deals are sealed with long-term contracts linked to the price of oil. More LNG shipped abroad will bring down LNG prices in Europe and Asia and create more spot trading. The US could become a pivotal player in the LNG market (just don’t tell American consumers, who could face higher domestic natural gas prices as a result). Related: Goldman Sachs Predicting $45 Oil By October

Cheniere Energy is scheduled to finish its export terminal in December, at which point, the first US LNG cargo could ship out.

But another company hopes to move beyond Cheniere Energy with a different concept. Delfin LNG is proposing a set of floating LNG vehicles (FLNGV), which will liquefy natural gas on board a ship, cutting out the need to build an onshore export terminal. The company says that will cut construction times by 1 to 2 years, reduce the onshore environmental impact, and most importantly, provide it with flexibility.

Building LNG export terminals require billions of dollars of upfront investment, necessitating some sort of certainty that buyers will be around for the long haul. That is why many companies enter into long-term contracts for the supplies before they put up the cash to build one. Related: Why Shale Gas Producers Could Rebound First

Delfin argues that its FLNGV fleet can be used to liquefy and export natural gas for as long as its customer base sticks around. It can pack up and move somewhere else once its work is done. Delfin’s proposed vehicle could also theoretically be moved out of the Gulf of Mexico in the event of a hurricane.

Specifically, Delfin LNG wants to build a compressor station onshore in Cameron Parish, Louisiana that will become equipped to pipe gas offshore. There is already a natural gas pipeline that runs from the Louisiana coast into the Gulf of Mexico – it was previously used to pipe gas onshore, but the new compressor station will allow Delfin to ship gas from onshore to offshore. There the gas will be liquefied on board the four proposed FLNGVs. Delfin submitted an application to the Coast Guard and the Maritime Administration.

The facility is expected to start up in 2019 and Deflin has already found a buyer –Litgas, a Lithuanian gas company.

Floating liquefaction is popping up more and more as the technology improves. Royal Dutch Shell is building one of the biggest and most iconic FLNG projects in the world. The Prelude, as it is called, is a ship that will drill for and liquefy natural gas. It will be positioned to drill off the coast of Australia. Related: OPEC Struggling To Keep Up The Pace In Oil Price War

Deflin LNG hopes to capitalize on cheap US gas with its project. At the same time, Delfin LNG is entering a market that is getting more and more crowded. Gone are the days of LNG prices in Asia running five or six times as high as US natural gas prices. The spot price for LNG in Asia – using the Platts JKM marker – fell to $7.12 per million Btu (MMBtu) for June 2015, less than half of what they were just a few years ago. US natural gas prices have been hovering around $3/MMBtu. After liquefaction and transportation costs, there is not much of a margin left.

A wave of new LNG projects is set to hit the world between now and 2018, with the largest additions ever coming this year and next. Global liquefaction capacity is expected to climb by 20 percent by 2016.

That could stall out a lot of projects that have not already signed up long-term customers. Or it could push developers into building floating LNG vehicles rather than onshore terminals.

By Nick Cunningham of Oilprice.com

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  • Bob on May 23 2015 said:
    An excellent and timely article that investors needs to read, as the global LNG competition heats up.

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