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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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LNG Projects Poised for Bumper Season Despite Washington Freeze

  • Energy Intelligence: interest in long-term LNG projects remains robust.
  • Energy Intelligence: we expect the LNG momentum to continue under the next government regardless of who wins the November presidential elections due to Biden’s commitment to U.S. allies and Trump’s pursuit of higher fossil fuel production.
  • WoodMackenzie: expect lower LNG prices in 2024.
Golden Pass LNG

Last week, U.S. President Joe Biden paused new licenses for LNG export projects still in the planning pipeline to give his administration time to reassess whether additional infrastructure is in the “public interest” in terms of the country’s energy security and climate goals. 

The administration has highlighted lingering fears that shipping large volumes of U.S. gas overseas could erode America’s competitive advantage of cheap energy critical for energy-intensive industries such as steelmaking and petrochemicals and also seeks to address concerns by environmental activists who have argued that the entire LNG manufacturing, delivery and consumption cycle has a much higher carbon footprint than currently touted. 

Not surprisingly, the decision has irked Republican lawmakers and rattled U.S. allies, especially in Europe due to the continent’s heavy reliance on American gas. With exports averaging 11.6 billion cubic feet per day (Bcf/d) during the first half of 2023, the U.S.  is the world’s largest LNG exporter, ~70% of exports going to Europe and much of the balance going to Asia. 

Currently, the U.S. has seven operating terminals capable of producing as much as 87 million tonnes of LNG a year--enough to satisfy the needs of Germany and France. Five more projects--already approved and under construction--will add another 63 million tonnes of capacity by 2028.

Scores of Big Oil companies including Exxon Mobil Corp. (NYSE:XOM), Chevron Corp. (NYSE:CVX), ConocoPhillips (NYSE:COP) and Energy Transfer LP (NYSE:ET) will potentially be impacted by the LNG freeze after they signed long-term supply deals with Venture Global LNG due to the company’s Calcasieu Pass 2 plant project. The project is part of a proposed 20 mtpa expansion of Venture Global’s existing Louisiana facility.  Related: Silicon Valley Startup Claims Massive Copper Discovery in Africa

But here’s the good news for gas bulls: Whereas proposed LNG projects waiting for permits will probably now have to wait until 2025 due to the November elections, Energy Intelligence has reported that interest in long-term LNG projects remains robust. Earlier, energy Intel had provided estimates that around 69 million tons per year of LNG would reach Final Investment Decision (FID) in the current year, potentially the most significant year for FIDs since 2019, when more than 70 million tons/yr was sanctioned. 

The energy agency says momentum remains strong following more than 40 million tons/yr in foundation supply agreements over the last two years, supporting projects that include Commonwealth, CP2 in North America, Delfin and Saguaro. The new approvals stand to increase capacity under construction by 40% and extend the next supply wave to 2028-29. 

Obviously, the LNG freeze means it’s highly unlikely that Energy Intel’s forecast will be met in the current year. However, we expect the LNG momentum to continue under the next government regardless of who wins the November presidential elections due to Biden’s commitment to U.S. allies and Trump’s pursuit of higher fossil fuel production with the former president vowing to restart approvals on his “very first day back”. 

The decision will not affect our forecast for U.S. LNG exports out to 2028, but after that it could affect the trajectory and pace of the sector’s growth and have potential to tighten the market in the long run,” Giles Farrer, head of gas and LNG asset research at Wood Mackenzie, has told the Financial Times.

That said, the LNG hiatus could complicate matters if it carries on for too long. LNG buyers would be forced to look elsewhere while buyers would struggle to get financing to reach the critical final investment decisions without buyers if the government drags its feet.

Source: Energy Intel

Source: Y-Charts

Gas Prices Lag

Back in 2022, Europe’s key front-month Dutch Title Transfer Facility (TTF) rocketed to an all-time high of €340 per megawatt-hour while U.S. Henry Hub gas prices hit a 15-year high of $9.24 per MMBtu around the same time European gas peaked as the continent scrambled for new gas supplies after it ditched Russian gas. Unfortunately, booming production coupled with mild weather has badly tanked gas prices, with TFF prices falling to below €30 per megawatt-hour, the lowest level since August 4th, while Henry Hub gas has now sunk to $2.02/MMBtu. 

Wall Street is predicting more pain in natural gas and LNG markets in the current year: in its report dubbed ‘Global Gas and LNG: 5 things to look out for in 2024’, Wood Mackenzie has forecast that mild Northern Hemisphere winter coupled with high storage levels in Europe will keep global gas prices subdued in 2024.

[Wood Mackenzie] has been forecasting lower 2024 prices for much of last year, especially compared to forward curves, amid weak market fundamental expectations. Global LNG supply growth will remain limited at 14 million, but with Asian LNG demand still weak, competition for LNG is unlikely to heat up,” Massimo Di Odoardo, Vice President of Gas Research at Wood Mackenzie, has said.

By Alex Kimani for Oilprice.com

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