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Released November 24, 2015 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--As the U.S. speeds toward its first exports of liquefied natural gas (LNG), a look in the rear-view mirror shows that billions of dollars of other North American LNG projects have been canceled or placed on hold over the last year or so, as LNG and crude-oil prices plummeted. The future may bring more project cancellations or delays for projects that have not yet secured tolling agreements, received their export licenses, or begun construction.
In the last year, Industrial Info has tracked $160 billion of global LNG project fallouts where financial investment decisions have been delayed until 2018, according to Shane Mullins, Industrial Info's vice president of product development for energy markets.
Most of the world's LNG contracts are tied to crude-oil prices. During the summer of 2014, before crude-oil prices started to fall, Asian countries were paying about $15 per million British thermal units (MMBtu) for LNG. The gas mainly was used for electric generation. However, the collapse of crude-oil prices, coupled with slowing economies in China and India, as well as Japan's decision to restart its idled nuclear reactors, cut deeply into LNG demand and prices. Today, Asian countries pay about $7 per MMBtu for LNG. For more on this issue, see August 13, 2015, article - Natural Gas: No Relief in Sight from Low Prices, and January 28, 2015, article --Oil & Gas Project Spending Plans Still Robust, but Changes Are Expected.
Industrial Info has long predicted that the North American LNG export race would be won by the first few developers that received export licenses and began construction of terminals. To date, four developers have won export licenses and begun construction of terminals with 14 LNG trains and aggregate export capacity of 63.5 million tons of LNG per year, Mullins told several hundred attendees at an Industrial Info event earlier this month. Exports from those terminals are scheduled to begin in stages between 2016 and 2019. For more on the progress of the Cheniere Sabine Pass export project, which is scheduled to begin shipments of LNG in the coming weeks, see October 15, 2015, article--Bechtel Readies for Sabine Pass LNG Production, Continues Work on Combined-Cycle Projects in New York, Ohio. The U.S. developers with licensed projects under construction include:
"Beyond the projects that are already under construction, the next projects likely to begin construction are two other Cheniere projects: Sabine Pass Train 6 and Corpus Christi Train 3," Mullins said. After that, he predicted the next projects to begin construction would be one train at Kinder Morgan's Elba Island, Georgia, terminal and one train at the Energy Transfer Partners' Trunkline terminal in Lake Charles, Louisiana.
Along with those projects, developers have proposed building 99 additional LNG trains, but none of them have filed a formal application with the Federal Energy Regulatory Commission (FERC) (Washington, D.C.). Those projects are not likely to move forward for several years, Mullins said. And the few projects still awaiting FERC approval likely will not begin construction until the next wave of LNG is required.
"The LNG market has changed a lot over the last year or so," Mullins said. "Lower crude-oil prices have wiped out the cost advantages of Henry Hub prices U.S. firms enjoyed a year ago. Also, LNG demand has flattened, partly because China and India continue to build coal-fired generation, and partly because Japan is in the process of restarting its nuclear generators. Russia is diversifying its customer base by exporting gas to China. Australian LNG projects are poised to flood the market with product. All of these trends have pushed LNG prices down compared to a year ago. Unless you are putting steel in the ground right now, it's going to get worse before it gets better."
Click on the image at right to see how the implied margin for U.S. companies has disappeared.
"U.S. LNG exporters do have some competitive advantages over foreign competitors," Mullins told several hundred attendees at Industrial Info's 2016 Industrial Market Outlook in Baton Rouge November 5. "First, U.S. natural gas costs are extremely low, largely because of the shale revolution. Second, most of the terminals being built have significantly lower infrastructure costs because they began life as LNG import terminals. But these advantages are not enough, on their own, to determine the winners in the global LNG race."
The LNG business is not dead, Mullins emphasized. He sees the next wave of LNG construction taking place in 2018 or 2019, to meet expected demand growth starting in about 2022. But for the next few years, the majority of opportunities appear to be taken.
One of the biggest shifts in the global LNG market has been the emergence of the U.S. as an LNG exporter, rather than an importer. For a decade prior to the start of the shale revolution, gas executives agreed that the U.S. would need to import LNG to meet domestic gas demand. However, over the last five or so years, as domestic gas production soared, that view has shifted 180 degrees. Now, with production outstripping demand, most analysts look to the LNG export market as a way for the U.S. to balance supply and demand. For more on this, see September 8, 2015, article - Too Much of a Good Thing: Natural Gas Production Expected to Continue Growing, Holding Prices Low Through 2020. As domestic and overseas trends have transformed the LNG market, several North American LNG developers cancelled projects over the last 14 months, including:
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
In the last year, Industrial Info has tracked $160 billion of global LNG project fallouts where financial investment decisions have been delayed until 2018, according to Shane Mullins, Industrial Info's vice president of product development for energy markets.
Most of the world's LNG contracts are tied to crude-oil prices. During the summer of 2014, before crude-oil prices started to fall, Asian countries were paying about $15 per million British thermal units (MMBtu) for LNG. The gas mainly was used for electric generation. However, the collapse of crude-oil prices, coupled with slowing economies in China and India, as well as Japan's decision to restart its idled nuclear reactors, cut deeply into LNG demand and prices. Today, Asian countries pay about $7 per MMBtu for LNG. For more on this issue, see August 13, 2015, article - Natural Gas: No Relief in Sight from Low Prices, and January 28, 2015, article --Oil & Gas Project Spending Plans Still Robust, but Changes Are Expected.
Industrial Info has long predicted that the North American LNG export race would be won by the first few developers that received export licenses and began construction of terminals. To date, four developers have won export licenses and begun construction of terminals with 14 LNG trains and aggregate export capacity of 63.5 million tons of LNG per year, Mullins told several hundred attendees at an Industrial Info event earlier this month. Exports from those terminals are scheduled to begin in stages between 2016 and 2019. For more on the progress of the Cheniere Sabine Pass export project, which is scheduled to begin shipments of LNG in the coming weeks, see October 15, 2015, article--Bechtel Readies for Sabine Pass LNG Production, Continues Work on Combined-Cycle Projects in New York, Ohio. The U.S. developers with licensed projects under construction include:
- Cheniere Energy Incorporated (NYSE:LNG) (Houston, Texas), building a five-train project at its Sabine Pass, Louisiana terminal and a two-train project in Corpus Christi, Texas.
- Sempra Energy (NYSE:SRE) (San Diego, California), with three-train project under construction at its Cameron terminal in Louisiana.
- Freeport LNG Development LP (Houston, Texas), building a three-train project in Freeport, Texas.
- Dominion Resources Incorporated (NYSE:D) (Richmond, Virginia), with a one-train terminal under construction at Cove Point, Maryland.
"Beyond the projects that are already under construction, the next projects likely to begin construction are two other Cheniere projects: Sabine Pass Train 6 and Corpus Christi Train 3," Mullins said. After that, he predicted the next projects to begin construction would be one train at Kinder Morgan's Elba Island, Georgia, terminal and one train at the Energy Transfer Partners' Trunkline terminal in Lake Charles, Louisiana.
Along with those projects, developers have proposed building 99 additional LNG trains, but none of them have filed a formal application with the Federal Energy Regulatory Commission (FERC) (Washington, D.C.). Those projects are not likely to move forward for several years, Mullins said. And the few projects still awaiting FERC approval likely will not begin construction until the next wave of LNG is required.
"The LNG market has changed a lot over the last year or so," Mullins said. "Lower crude-oil prices have wiped out the cost advantages of Henry Hub prices U.S. firms enjoyed a year ago. Also, LNG demand has flattened, partly because China and India continue to build coal-fired generation, and partly because Japan is in the process of restarting its nuclear generators. Russia is diversifying its customer base by exporting gas to China. Australian LNG projects are poised to flood the market with product. All of these trends have pushed LNG prices down compared to a year ago. Unless you are putting steel in the ground right now, it's going to get worse before it gets better."
Click on the image at right to see how the implied margin for U.S. companies has disappeared."U.S. LNG exporters do have some competitive advantages over foreign competitors," Mullins told several hundred attendees at Industrial Info's 2016 Industrial Market Outlook in Baton Rouge November 5. "First, U.S. natural gas costs are extremely low, largely because of the shale revolution. Second, most of the terminals being built have significantly lower infrastructure costs because they began life as LNG import terminals. But these advantages are not enough, on their own, to determine the winners in the global LNG race."
The LNG business is not dead, Mullins emphasized. He sees the next wave of LNG construction taking place in 2018 or 2019, to meet expected demand growth starting in about 2022. But for the next few years, the majority of opportunities appear to be taken.
One of the biggest shifts in the global LNG market has been the emergence of the U.S. as an LNG exporter, rather than an importer. For a decade prior to the start of the shale revolution, gas executives agreed that the U.S. would need to import LNG to meet domestic gas demand. However, over the last five or so years, as domestic gas production soared, that view has shifted 180 degrees. Now, with production outstripping demand, most analysts look to the LNG export market as a way for the U.S. to balance supply and demand. For more on this, see September 8, 2015, article - Too Much of a Good Thing: Natural Gas Production Expected to Continue Growing, Holding Prices Low Through 2020. As domestic and overseas trends have transformed the LNG market, several North American LNG developers cancelled projects over the last 14 months, including:
- The Port Dolphin Energy Offshore LNG Receiving Terminal, a $450 million project slated for Tampa, Florida. To view this project report, click here.
- The Pleasant Point LNG Receiving Terminal, an $800 million project slated to be built off the coast of Maine. To view this project report, click here.
- The Corpus Christi LNG Liquefaction Plant, under development by Pangea LNG (North America) Holdings LLC (The Woodlands, Texas). To view the project report for this $2.5 billion project, click here.
- The Lavaca Bay Offshore Phase I LNG Liquefaction Plant, a $2.4 billion project being developed by Excelerate Energy LLC (The Woodlands, Texas). To view the project report for this project, click here.
- The Port Lavaca Offshore LNG Liquefaction Plant Phase II Unit Addition, a $2 billion project also being developed by Excelerate Energy. To view the project report for this project, click here.
- The Squamish Woodfibre LNG Liquefaction Processing and Export Plant, a $1.7 billion project slated to be constructed in British Columbia. To view the project report for this project, click here.
- The Port Of Brownsville LNG Offshore Liquefaction and Export Terminal, a $350 million project slated for Brownsville, Texas. To view the project report for this project, click here.
- The Odessa Micro-LNG Liquefaction Plant scheduled to be built in Odessa, Texas. To view this project report for this $200 million project, click here.
| Developer | Project | Train | Location | Kick-off | Start-up | MTPA |
|---|---|---|---|---|---|---|
| Cheniere Energy | Sabine Pass | 1 | Louisiana | 2012 | 2016 | 4.5 |
| Cheniere Energy | Sabine Pass | 2 | Louisiana | 2012 | 2016 | 4.5 |
| Sempra Energy | Cameron | 1 | Louisiana | 2014 | 2017 | 4.5 |
| Dominion | Cove Point | 1 | Maryland | 2014 | 2017 | 5.252 |
| Cheniere Energy | Sabine Pass | 3 | Louisiana | 2013 | 2017 | 4.5 |
| Cheniere Energy | Sabine Pass | 4 | Louisiana | 2013 | 2017 | 4.5 |
| Sempra Energy | Cameron | 2 | Louisiana | 2014 | 2018 | 4.5 |
| Sempra Energy | Cameron | 3 | Louisiana | 2014 | 2018 | 4.5 |
| Cheniere Energy | Corpus Christi | 1 | Texas | 2015 | 2018 | 4.5 |
| Freeport LNG | Freeport | 1 | Texas | 2014 | 2018 | 4.4 |
| Cheniere Energy | Sabine Pass | 5 | Louisiana | 2015 | 2018 | 4.5 |
| Cheniere Energy | Corpus Christi | 2 | Texas | 2015 | 2019 | 4.5 |
| Freeport LNG | Freeport | 2 | Texas | 2015 | 2019 | 4.4 |
| Freeport LNG | Freeport | 3 | Texas | 2015 | 2019 | 4.4 |
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
