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The banking crisis that started with the failure of Silicon Valley Bank (SVB) is putting major U.S. LNG projects at risk, as rising interest rates and supply chain issues introduce financial challenges that have already led to delays.
According to Reuters, two of four new projects that were slated for final investment decisions in Q1 of this year have seen the deadlines extended. Reuters cited Kpler’s lead natural gas analyst Eleni Papadopoulou as raising "concerns that banking lending activity might be pulled back” and we might see more FID delays due to the banking crisis.
The delays are tied to export terminal projects by NextDecade and Energy Transfer LP, affected by rising interest rates, rising construction and labor costs and the disconnect between natural gas prices in the U.S. and the rest of the world.
NextDecade has delayed construction of its Rio Grande LNG facility in Texas, and is now expecting an FDI by the end of Q2. In filings with the SEC, NextDecade said it had extended its construction agreements to June 15. The cost of the first three trains of Rio Grande LNG is estimated at $11.5 billion, with a 16 million tonnes per year capacity.
According to Reuters, the French bank Societe Generale SA withdrew last year as the lead bank for Rio Grande.
The two projects that are advancing without delay are Venture Global LNG’s project in Louisiana and Sempra Energy’s LNG project in Texas.
Advancement now means that these promising big projects will have to rely much more significantly on advance offtake deals than on developer equity. In other words, the projects that will be able to move forward without any financial snags will likely be those that can contract their entire capacity in advance. That makes offtake deals even more important going forward.
That also means dealing with volatile natural gas prices that make long-term offtake deals risky.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com