As Freeport LNG Terminal Begins Operations, U.S. LNG Shakeout Looms

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The opening last month of the Freeport liquefied natural gas (LNG) export terminal in Brazoria County, Texas, brought to five the number of operating LNG export terminals in the Lower 48 states. The Freeport facility has three LNG trains, though only Train 1 is operating now. Train 2 is scheduled to begin operating next January, and Train 3 plans to begin commercial operations next May. When all three trains are operating, the Freeport plant will be process up to 12 million metric tons per year of LNG.

That facility joins other operating LNG export terminals at: Sabine Pass, Louisiana; Cove Point, Maryland; Corpus Christi, Texas, and Cameron, Louisiana. Those five facilities can export a total of about 50 million tons of LNG per year, a fairly large chunk of the global LNG export market of about 317 million tons per year in 2018.

Click on the image at right to see a line graph on the near-doubling of global LNG exports over the last decade.

Another plant is under construction in Port Arthur, Texas, and a final investment decision (FID) was made in August for the Calcasieu Pass LNG export terminal in Louisiana. Calcasieu Pass is expected to begin exporting LNG from two trains in 2022 while the three trains being constructed at the Golden Pass LNG terminal at Port Arthur are scheduled to begin operating by 2024.

At Elba Island, Georgia, 10 small-trains have been constructed by Kinder Morgan Incorporated (NYSE:KMI) (Houston, Texas). One of the trains has begun commercial operation; two units are in startup mode; three units are in the testing/commissioning phases; and the remaining four units await the same process.

Another six U.S. LNG projects with a processing capacity of about 26 million tons per year have received export permits from the Federal Energy Regulatory Commission (FERC) and are awaiting FID.

Two proposed Canadian LNG terminals, LNG Canada and Woodfibre, with combined export capacity of about 3.5 million tons per year, are scheduled to begin construction this year or next. The Canadian plants are expected to begin operating in the 2022-2024 time frame, according to Industrial Info's project database.

Investment bank Morgan Stanley earlier this year predicted as much as $40 billion could be spent constructing LNG export facilities over the next five years. While plentiful low-cost gas gave U.S. LNG exports a leg up in securing Asian LNG sales in previous years, Asian LNG prices have come down sharply in recent years, falling to about $6-7 per million British thermal units (MMBtu) earlier this year, down from as high as $18 per MMBtu in 2013. The global LNG market today is vastly more competitive than is was back then, as more export projects have been built around the world, notably in Australia and Russia. For more on that, see August 29, 2019, article - Upcoming Investment Decisions on LNG Terminals Will Shape U.S. Natural Gas Industry.

Global LNG exports increased about 37 billion cubic meters (bcm) or about 27 million tons per year in 2018, just slightly under the level of 2017, according to the BP Statistical Review of World Energy, released this past summer. For more on that, see June 27, 2019, article - Global Gas Demand, Production Soar, but is LNG Gold Rush Over?

Click on the image at right to see a chart of annual increases in global LNG export capacity.

Jesus Davis, Industrial Info's research specialist for the Oil & Gas Production, Pipelines and Terminals industries, predicted that projects that do not receive their FID and begin construction within the next 12 months will be deferred to the next wave of LNG buildout, starting about 2025. "Projects without FID will be hard-pressed to move forward because this is a global market, and projects in other countries, including Russia, Mozambique and Qatar, are moving forward. Some projects I never thought would be built, including one in Nigeria, are moving forward."

"The U.S.-China trade war has really hurt planned U.S. hydrocarbon exports to China, and other countries are stepping in the fill the gap," he continued. "Planned hydrocarbon flows - in crude, LNG and other hydrocarbons - simply aren't materializing." This past June, Chinese tariffs on imports of U.S. LNG rose to 25% from 10%, as part of the tit-for-tat trade and tariff wars between the two countries.

Many U.S. LNG export projects - perhaps the majority of them - were developed in expectation of serving the Asian market, mainly China, he continued. "In retrospect, although we knew not all announced projects would be built, developers put too many eggs in the basket marked 'China,' " he continued.

Davis said U.S. LNG projects that don't receive their FID in the next 12 months probably won't be cancelled outright, given the sums that have been invested to get to where they are today. Rather, they will be deferred, placing them at the starting line for the next LNG buildout, likely to start around 2025.

"If we didn't have a trade war, we would have probably seen three more U.S. LNG export terminals receive their FID by now," he commented.

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