U.S. Sets New Record In LNG Export Capacity

• The U.S. is set to add a total of 5.1 billion cubic feet per day (Bcf/d) of LNG export capacity in the first half of 2023, beating the full-year record of approved volumes from 2014.
• Despite cost inflation concerns and higher interest rates, long-term deals are on the rise, especially in Europe, following the Russian invasion of Ukraine and subsequent energy supply disruptions.
• With the approval of two projects and a third nearing final investment decision, U.S. export capacity will increase significantly, retaining its position as the world's top LNG export capacity holder.

Despite concerns about cost inflation, developers of LNG projects in the United States are set to approve a record-high volume of export capacity in the first half of 2023, driven by rising global LNG demand and increased long-term contracting from customers willing to boost energy security. 

Two projects were already given the financial go-ahead between January and June, while a third is expected to reach a final investment decision by the end of the week.  

With those three projects, the United States is on track to add a total of 5.1 billion cubic feet per day (Bcf/d) of LNG export capacity in the first half, beating the full-year record of approved volumes of 4.9 Bcf/d from 2014, when three project FIDs took place. 

The newly approved projects will further consolidate the U.S. global leadership in terms of export capacity, and with projects already approved and under construction, U.S. capacity will jump to over 18 Bcf/d. 

Currently, LNG export facilities in the United States have a combined operating capacity under real-world operating conditions of 11.4 Bcf/d, the EIA said in its Annual Energy Outlook 2023 earlier this year. There is additional 7.3 Bcf/d of capacity under construction, while further 18.3 Bcf/d of possible LNG export capacity has received full regulatory approval from the U.S. Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC) but has not yet received a final investment decision.

In the short-term, U.S. LNG exports are also expected to increase, from 10.59 Bcf/d last year, when Freeport LNG was shut down after June 2022, to 

12.07 Bcf/d this year, and to 12.73 Bcf/d in 2024, per the Short-Term Energy Outlook (STEO) of the EIA from earlier this month. 

The other top LNG exporters, Qatar and Australia, are also set to increase their export capacity this decade with major new projects, but the U.S. is expected to remain the world’s top LNG export capacity holder. 

In recent months, concerns have been raised about cost inflation for some new projects expecting FID. Costs have surged and financing has become more complicated with the higher interest rates, executives have said.  

However, LNG buyers are going for more long-term deals, including in Europe, which was shunning decades-long agreements for the super-chilled fuel before the Russian invasion of Ukraine. After the slump in Russia’s pipeline gas exports to Europe and the EU pledge to ditch Russian gas by 2027, more and more European countries and companies have been contracting long-term LNG supply.   

In one of the most recent deals, Germany’s state-controlled firm Securing Energy for Europe (Sefe) signed last week a 20-year agreement with Venture Global LNG to import 2.25 million tons of LNG per year from Venture Global’s third project, CP2 LNG, as Europe’s biggest economy is looking to secure gas supply after Russia stopped deliveries.   

CP2 is one of the U.S. export projects that could also receive FID soon, analysts say. 

Venture Global LNG has already approved one project this year—it announced in March the FID and successful closing of the $7.8 billion project financing for the second phase of the Plaquemines LNG facility. This, along with Sempra’s Port Arthur LNG Phase 1 project in Jefferson County, Texas, were the two projects approved so far in 2023. 

The third one, NextDecade’s Rio Grande LNG project, targets FID on Phase 1 by the end of the second quarter, the company said earlier this month after signing framework agreements with Global Infrastructure Partners (GIP) and TotalEnergies to enable the final investment decision (FID) for the Rio Grande LNG project. 

Supermajor TotalEnergies will hold a 16.7% interest in the first phase of the project, and has agreed to purchase 5.4 million tons per annum (MTPA) of LNG from Phase 1 for 20 years and has options to purchase LNG from Train 4 and Train 5. 

In another major long-term offtake agreement between an energy major and a U.S. LNG exporter, Equinor signed last week a 15-year purchase agreement of around 1.75 million tons of LNG per year from Cheniere, which will double the volumes of LNG that Equinor will export out of Cheniere’s LNG terminals on the U.S. Gulf Coast. 

By Tsvetana Paraskova for Oilprice.com

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