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Released December 28, 2021 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--U.S. liquefied natural gas (LNG) exports to Asia and Europe shot upward during 2021, with cargoes hitting prices of $50 per million British thermal units (MMBtus) in Asia and $32 per MMBtus in Europe. Sky-high LNG prices did not translate into significantly greater export terminal project activity in the U.S. during this year, but 2022 is expected to be more active, according to Jesus Davis, IIR's senior North American researcher for Oil & Gas Production, Pipelines and Terminals.
"We expect LNG export terminal project activity to heat up in 2022, with as many as four projects scheduled to receive a final investment decision (FID)," he said. Investment decisions are scheduled to be made next year for Tellurian Incorporated's (NASDAQ:TELL) (Houston, Texas) Driftwood and Venture Global LLC's (Houston) Plaquemine grassroot projects in Louisiana; and expansions of Cheniere Energy's (Houston) LNG facility in Corpus Christi, Texas, and Sempra Energy's (NYSE:SRE) (San Diego, California) facility in Cameron, Louisiana. If all four move forward, that would add as much as 31 million tons per annum (TPA) to U.S. export capacity if they are brought online as scheduled later this decade.
The U.S. became the third largest LNG exporter in 2020, and is expected to surpass Australia and Qatar to become the largest exporting nation in 2022 after two large projects--Venture Global's Calcasieu Pass and Cheniere's Sabine Pass LNG Train #6, both in Louisiana--begin commercial operations in 2022, according to a recent U.S. Energy Information Administration (EIA) projection. For more on that EIA report, see December 10, 2021, article - EIA: U.S. to Feature World's Largest LNG Export Capacity by 2022.
Although high LNG spot prices don't directly affect the financial feasibility of a specific project, they are indicative of demand exceeding supply, which pushes prices up. In Europe, higher LNG prices stemmed from strong demand; a colder winter in 2020-21 that left storage levels low; and continued uncertainty over the Nord 2 gas pipeline from Russia to Germany. In Asia, strong baseline demand, plus a move away from coal in power generation, is causing demand to exceed supply.
"The global LNG spot market is very dynamic right now," Davis said. "Dozens of LNG tankers have been rerouted from Asia to Europe to take advantage of higher spot prices there."
In terms of FIDs for U.S. LNG export terminals, Davis said it was a question of how fast each project would be able to lock in contracts. "In the global LNG game, the race definitely is to the swift," he said.
Once a proposed LNG export terminal makes an FID, secures export permits and begins construction, the U.S. will not have the global LNG market all to itself. Other countries, notably Qatar, Russia and Australia, also are developing additional export capacity.
On a global basis, existing LNG export facilities, terminals under construction and planned LNG projects look to keep the world well supplied through the middle of this decade. But meeting future demand to 2035 will require at least 100 million TPA of new capacity to be approved by 2025 so it can be online to meet expected future demand after 2030, according to IIR Research.
Click on the image at right to see a graphic of global LNG export capacity to 2035.
Davis said he has some concerns about the availability of skilled craft labor to build the proposed LNG export terminals. "Right now, you can't even find enough people to keep a fast-food restaurant open," he said. "We assume that the skilled craftspeople will roll off one completed project to the next, but there's strong demand for that labor from proposed Chemical Processing projects. I think there will be enough welders, millwrights and pipefitters to go around, but the price of that labor will be going up, which could affect the timelines for proposed projects."
More worrisome than the availability and cost of skilled craft labor is what Davis sees as the under-investment in oil & gas exploration and production: "Investors have been hammering upstream firms about 'capital discipline' for years, and the operators have heeded investors' wishes. Now, rather than using surplus cash flow to acquire new acreage and drill more wells, they are sending it back to the owners of the company."
"In the short run, it's hard to argue against giving the owners of the company what they want, but I am more concerned with the long-term, industry-wide implications of this trend. A lot of future gas is earmarked for LNG export terminals, but if production falls below expectation, LNG export terminals might be the first ones curtailed."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 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. Follow IIR on: Facebook - Twitter - LinkedIn.
"We expect LNG export terminal project activity to heat up in 2022, with as many as four projects scheduled to receive a final investment decision (FID)," he said. Investment decisions are scheduled to be made next year for Tellurian Incorporated's (NASDAQ:TELL) (Houston, Texas) Driftwood and Venture Global LLC's (Houston) Plaquemine grassroot projects in Louisiana; and expansions of Cheniere Energy's (Houston) LNG facility in Corpus Christi, Texas, and Sempra Energy's (NYSE:SRE) (San Diego, California) facility in Cameron, Louisiana. If all four move forward, that would add as much as 31 million tons per annum (TPA) to U.S. export capacity if they are brought online as scheduled later this decade.
The U.S. became the third largest LNG exporter in 2020, and is expected to surpass Australia and Qatar to become the largest exporting nation in 2022 after two large projects--Venture Global's Calcasieu Pass and Cheniere's Sabine Pass LNG Train #6, both in Louisiana--begin commercial operations in 2022, according to a recent U.S. Energy Information Administration (EIA) projection. For more on that EIA report, see December 10, 2021, article - EIA: U.S. to Feature World's Largest LNG Export Capacity by 2022.
Although high LNG spot prices don't directly affect the financial feasibility of a specific project, they are indicative of demand exceeding supply, which pushes prices up. In Europe, higher LNG prices stemmed from strong demand; a colder winter in 2020-21 that left storage levels low; and continued uncertainty over the Nord 2 gas pipeline from Russia to Germany. In Asia, strong baseline demand, plus a move away from coal in power generation, is causing demand to exceed supply.
"The global LNG spot market is very dynamic right now," Davis said. "Dozens of LNG tankers have been rerouted from Asia to Europe to take advantage of higher spot prices there."
In terms of FIDs for U.S. LNG export terminals, Davis said it was a question of how fast each project would be able to lock in contracts. "In the global LNG game, the race definitely is to the swift," he said.
Once a proposed LNG export terminal makes an FID, secures export permits and begins construction, the U.S. will not have the global LNG market all to itself. Other countries, notably Qatar, Russia and Australia, also are developing additional export capacity.
On a global basis, existing LNG export facilities, terminals under construction and planned LNG projects look to keep the world well supplied through the middle of this decade. But meeting future demand to 2035 will require at least 100 million TPA of new capacity to be approved by 2025 so it can be online to meet expected future demand after 2030, according to IIR Research.
Davis said he has some concerns about the availability of skilled craft labor to build the proposed LNG export terminals. "Right now, you can't even find enough people to keep a fast-food restaurant open," he said. "We assume that the skilled craftspeople will roll off one completed project to the next, but there's strong demand for that labor from proposed Chemical Processing projects. I think there will be enough welders, millwrights and pipefitters to go around, but the price of that labor will be going up, which could affect the timelines for proposed projects."
More worrisome than the availability and cost of skilled craft labor is what Davis sees as the under-investment in oil & gas exploration and production: "Investors have been hammering upstream firms about 'capital discipline' for years, and the operators have heeded investors' wishes. Now, rather than using surplus cash flow to acquire new acreage and drill more wells, they are sending it back to the owners of the company."
"In the short run, it's hard to argue against giving the owners of the company what they want, but I am more concerned with the long-term, industry-wide implications of this trend. A lot of future gas is earmarked for LNG export terminals, but if production falls below expectation, LNG export terminals might be the first ones curtailed."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 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. Follow IIR on: Facebook - Twitter - LinkedIn.
