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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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The World’s Biggest LNG Exporter Has A Pipeline Problem

  • The energy crisis in Europe has helped the United States position itself as the world’s largest LNG exporter.
  • The United States, as the world’s biggest LNG exporter, also has the world’s largest backlog of near-shovel-ready liquefied natural gas projects.
  • Limited pipeline capacity remains the biggest hurdle to expanding the sector.

The United States has become the world's biggest liquefied natural gas (LNG) exporter as deliveries to energy-starved buyers in Europe and Asia have surged. In the current year, five developers have signed over 20 long-term deals to supply more than 30 million metric tons/year of LNG or roughly 4 Bcf/d, to energy-starved buyers in Europe and Asia. 

Recently, LNG giant Cheniere Energy Inc.(NYSE: LNG) revealed that it’s had the most active year for contracting since 2011. Meanwhile, volatile spot prices and a worsening supply outlook have triggered a rush by importers to negotiate long-term deals as they attempt to lock in prices. According to a report by the Oil & Gas Journal, 10-year LNG contracts are currently priced at ~75% above 2021’s rates, with tight supplies expected to persist as Europe aims to boost LNG imports.

Unfortunately, whereas the United States has the world’s largest backlog of near-shovel-ready liquefied natural gas projects, takeaway constraints including limited pipeline capacity remain the biggest hurdle to expanding the sector.

In the Appalachian Basin, the country’s largest gas-producing region churning out more than 35 Bcf/d, environmental groups have repeatedly stopped or slowed down pipeline projects and limited further growth in the Northeast. This leaves the Permian Basin and Haynesville Shale to shoulder much of the growth forecast for LNG exports. Indeed, EQT Corp.(NYSE: EQT) CEO Toby Rice recently acknowledged that Appalachian pipeline capacity has “hit a wall.”

Analysts at East Daley Capital Inc. have projected that U.S. LNG exports will grow to 26.3 Bcf/d by 2030 from their current level of nearly 13 Bcf/d. For this to happen, the analysts say another 2-4 Bcf/d of takeaway capacity would need to come online between 2026 and 2030 in the Haynesville.

This assumes significant gas growth from the Permian and other associated gas plays. Any view where oil prices take enough of a dip to slow that activity in the Permian and you’re going to have even more of a call for gas from gassier basins,” the analysts have said.

U.S. Pipeline Companies To Watch

According to FERC, four U.S. LNG projects are currently under construction, another 12 have been approved by federal regulators and four more have been proposed totaling 40 Bcf/d of potential LNG exports.

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The pivotal Permian Basin is preparing to unleash a torrent of gas and gas projects to meet exploding LNG and nat. gas demand. Energy Transfer LP (NYSE: ET) is looking to build the next large pipeline to transport natural gas production from the Permian Basin. The company is also working on the Louisiana-based Gulf Run pipeline, which will transport gas from the Haynesville Shale in Texas, Arkansas, and Louisiana to the Gulf Coast.

Energy Transfer is expected to report Q2 earnings on 3rd August 2022. The consensus EPS forecast for the quarter, based on 5 analysts as per Zacks Investment Research, is $0.28 compared to $0.20 for last year’s corresponding period.

Back in May, a consortium of oil and natural gas firms namely WhiteWater Midstream LLC, EnLink Midstream (NYSE:ENLC), Devon Energy Corp. (NYSE: DVN) and MPLX LP (NYSE: MPlX) announced that they had reached a final investment decision (FID) to move forward with the construction of the Matterhorn Express Pipeline after having secured sufficient firm transportation agreements with shippers.

According to the press release, ‘‘The Matterhorn Express Pipeline has been designed to transport up to 2.5 billion cubic feet per day (Bcf/d) of natural gas through approximately 490 miles of 42-inch pipeline from Waha, Texas, to the Katy area near Houston, Texas. Supply for the Matterhorn Express Pipeline will be sourced from multiple upstream connections in the Permian Basin, including direct connections to processing facilities in the Midland Basin through an approximately 75-mile lateral, as well as a direct connection to the 3.2 Bcf/d Agua Blanca Pipeline, a joint venture between WhiteWater and MPLX.’’

Matterhorn is expected to be in service in the second half of 2024, pending the regulatory approvals. 

WhiteWater CEO Christer Rundlof touted the company’s partnership with the three pipeline companies in developing “incremental gas transportation out of the Permian Basin as production continues to grow in West Texas.” Rundlof says Matterhorn will provide “premium market access with superior flexibility for Permian Basin shippers while playing a critical role in minimizing flared volumes.”

Matterhorn joins a growing list of pipeline projects designed to capture growing volumes of Permian supply to send to downstream markets. 

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WhiteWater revealed plans to expand the Whistler Pipeline’s capacity by about 0.5 Bcf/d, to 2.5 Bcf/d, with three new compressor stations.

MPLX has several other expansion projects under construction. The company says it expects to finish construction on two processing plants this year, and recently reached a final investment decision to expand its Whistler Pipeline. 

Also in May, Kinder Morgan Inc. (NYSE: KMI) subsidiary launched an open season to gauge shipper interest in expanding the 2.0 Bcf/d Gulf Coast Express Pipeline (GCX).

Meanwhile, KMI has already completed a binding open season for the Permian Highway Pipeline (PHP), with a foundation shipper already in place for half of the planned 650 MMcf/d expansion capacity.

In an effort to increase LNG exports to the European Union to stave off an energy crisis amid Russia’s war on Ukraine, the U.S. Department of Energy has authorized additional LNG exports from the planned Golden Pass LNG Terminal in Texas and the Magnolia LNG Terminal in Louisiana. 

Jointly owned by Exxon Mobil (NYSE: XOM) and Qatar Petroleum, the $10B Golden Pass LNG export project is expected to become operational in 2024, while Magnolia LNG, owned by Glenfarne Group, will come online by 2026. The two terminals are expected to produce more than 3B cf/day of natural gas, although Magnolia is yet to sign contracts with customers. 

Previously, American LNG developers were unwilling to construct self-financed liquefaction facilities that are not secured by long-term contracts from European countries. However, the Ukraine war has exposed Europe’s soft underbelly and the harsh reality is forcing a rethink of their energy systems. To wit, Germany, Finland, Latvia, and Estonia recently expressed the desire to move forward with new LNG import terminals.

Meanwhile, the DoE has approved expanded permits for Cheniere Energy's (NYSE: LNG) Sabine Pass terminal in Louisiana and its Corpus Christi plant in Texas. The approvals allow the terminals to export the equivalent of 0.72 billion cubic feet of LNG per day to any country with which the United States does not have a free trade agreement, including all of Europe. Cheniere says the facilities already are making more gas than is covered by previous export permits.

By Alex Kimani for Oilprice.com

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