Upcoming Investment Decisions on LNG Terminals Will Shape U.S. Natural Gas Industry

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--At the 31st annual Energy Summit, sponsored by the Colorado Oil & Gas Association (COGA) (Denver, Colorado), John Harpole, founder of Mercator Energy (Littleton, Colorado), cited data from Morgan Stanley that as much as $40 billion could be invested in proposed U.S. liquefied natural gas (LNG) terminals over the next five years.

While plentiful supplies and low costs had given 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 $7 per million British thermal units (MMBtu) earlier this year, down from as high as $18 per MMBtu in 2013.

That suggests that those making LNG final investment decisions (FIDs) over the next 12 to 16 months might be more cautious than they were several years ago. Other nations, including Australia, have increased their LNG exports, and pipeline gas to some Asian countries is posing a competitive alternative to LNG in tankers. LNG is a large and growing market, but U.S. exporters will have to contend with a large and growing group of competitors.

Developers of LNG export terminals are scheduled to make FIDs over the next 16 months for tens of billions of dollars of new terminals, and the outcome of those decisions will have a big impact on the future of the U.S. natural gas industry, Jack Weixel, a senior director at IHS Markit Limited (London, England), said.

"LNG exports are driving demand growth," Weixel told about 600 conference attendees. "LNG exports is where gas is at."

In the Lower 48 states, nearly 90% of demand growth for natural gas over the next six years is tied to exports, primarily LNG, he said. Last week, the owners of the proposed Calcasieu Pass LNG export terminal in Cameron Parish, Louisiana, made an FID on that $7 billion project. For more on that, see August 21, 2019, market brief - Venture Global LNG Project Receives Final Investment Decision.

Natural gas at Henry Hub is expected to average less than $2 per MMBtu in 2020, Weixel said: "It's a case of Henry Hub prices being lower for longer, and longer, and longer," he told the COGA attendees. Low gas costs are expected to help U.S. LNG exporters.

LNG exports have more of an impact on the future of the gas industry because gas has essentially won the fuel war against coal in the Electric Power business. Further domestic demand growth for gas "is limited," Weixel said. New gas-fired electric generating capacity will be "moderating" from its rapid growth of nearly 20,000 megawatts (MW) in 2018. He said he expects new gas-fired capacity additions to fall to about 8,000 MW in 2019, 6,000 MW in 2020 and 5,000 MW in 2021 before bouncing up to nearly 10,000 MW in 2022.

The LNG terminals that get a positive FID this year and next should be operating by 2024 or 2025, Weixel estimated. Depending on how many new terminals are built, up to 7.2 billion cubic feet per day (Bcf/d) of new gas demand could be created.

Solar capacity additions are expected to outstrip new-build gas-fired generation annually for the next five years, Weixel said. In the same way that gas has captured market share from coal in the dog-eat-dog world of electricity fuels, gas is increasingly facing an economic challenge from renewables, including solar and wind, according to Weixel and another COGA conference speaker, Alice Jackson, president at Xcel Energy -- Colorado, part of Xcel Energy (NASDAQ:XEL) (Minneapolis, Minnesota).

Jackson said the utility's first-generation renewables generated electricity at a blended average cost of about 6.9 cents per kilowatt-hour (kWh), but that cost has fallen to about 1.5 cents per kWh. Notably, power from early solar installations cost about 7 cents per kWh, but solar generators can produce electricity for about 2.5 cents per kWh, she said. Power from a natural gas combined cycle (NGCC) generator costs about 4 cents per kWh, she estimated.

"It is economic for us to replace some gas with solar," she said, adding that was possible because Colorado has high-quality solar and wind resources. She didn't say Xcel Energy -- Colorado's experience could be replicated across the country.

The Colorado operations of Xcel Energy late last year adopted a goal of cutting carbon dioxide (CO2) emissions by 80% by 2030, Jackson noted. Beyond that, the utility aspires to be 100% carbon free by 2050. For more on this, see February 6, 2019, article - Xcel's $4 Billion+ in Projects Point to Natural Gas in the Short Run, Renewables as Ultimate Goal "We're locked in and can attain our 2030 goals with existing technologies" in renewables and battery energy storage, Jackson said. "But our plan has two caveats: reliability and affordability. Things happen in life, like Bomb Cyclones and Polar Vortexes. We need to be flexible, but we are committed to chasing carbon out of the economy."

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