Global gas rally to revive long stalled U.S. LNG projects

HOUSTON, Jan 28 (Reuters) – High global natural gas prices end a two-year blockage of new liquefied natural gas (LNG) projects in the United States, at least three of the multi-billion proposals likely securing enough supply contracts to begin construction this year, developers and industry experts said.

A Louisiana project that was given the green light in 2019 was the last all-new plant in the United States to be given the green light, benefiting from then-strong demand from China and utilities switching to LNG from coal. . A dozen more have been stalled, first by the China-US trade war, then by the COVID-19 pandemic and environmental concerns.

But strong fuel demand in northern Europe and China has pushed global gas prices to near-record highs, rekindling prospects for funding plants that cool natural gas into liquid for shipping by ocean tankers.

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A key benchmark price for natural gas deliveries in northern Europe has more than quadrupled from a year ago, to around $30 per million British thermal units per day (mmBtu).

Declining gas production in Europe and increased dependence on Russia for supplies has also driven up global LNG prices and drawn attention to the need for new LNG plants in the United States. States and Asia. Read more

(For a chart of US LNG exports, click here: https://graphics.Reuters.com/USA-LNG/PROJECTS/jnvwejnolvw/)

RETURN FROM CHINA

China stopped taking most of the US LNG by imposing a 25% tariff on imports in mid-2019, at the height of a trade war between the United States and China. But in November, major Chinese energy companies agreed to buy more US gas than ever before through long-term contracts.

Such deals are key to securing financing for these $4 billion to $8.5 billion projects and breaking the development stalemate, said Carlos Sole, an attorney at law firm Baker Botts who has been involved in the development and financing of several LNG export projects in the United States.

“Last year, capital was unwilling to deploy on a speculative basis without long-term contracts,” Sole said. “Assuming these are met, which is the general expectation given current market conditions, then capital should be available.”

At the top of the list of proposals likely to gain financial approval are the Venture Global and Tellurian Inc (TELL.A) plants, both in Louisiana, and a Cheniere Energy Inc (LNG.A) project in Corpus Christi, Texas. , said Craig Pirrong, a financial professor at the University of Houston and commodity trading expert.

“EXISTENTIAL PROBLEM”

“Banks are finally realizing this is an existential problem,” said Tellurian executive chairman Charif Souki, referring to the recent lack of investment in energy.

Construction of the first phase of Tellurian’s Driftwood project, which would export about 11 million tonnes per annum (MTPA) of LNG, or about 1.5 billion cubic feet per day (bcfd) of natural gas, could begin this summer once financial barriers eliminated, he said earlier this month.

The three new projects would increase US export capacity by about one-third by mid-decade. Plants already under construction are expected to take the U.S.’s maximum capacity to 13.9 billion cubic feet per day by the end of this year, the U.S. Energy Information Administration estimates, a figure surpassing Qatar and Australia. , now the two largest LNG exporters.

“This is the best macro environment the LNG industry has ever seen,” Delfin LNG managing director Dudley Poston said in an interview, adding that he was “very confident” Delfin LNG’s project off the coast of Louisiana would be approved for construction this year. Read more

PERMANENT OBSTACLES

Yet, optimism has never been lacking among project developers despite repeated setbacks.

Financial clearances for projects such as Tellurian’s Driftwood, NextDecade Corp’s (NEXT.O) Rio Grande and Sempra Energy’s (SRE.N) Port Arthur LNG were promised and delayed last year, in some cases for the second time.

Investors remain reluctant to invest in new projects where the expected revenue stream is supported by inexperienced or untested buyers, said Tessa Davis, a partner at law firm Morrison & Foerster LLP who was involved in the financing of LNG projects in Indonesia and Qatar.

The rise of LNG buyers in Southeast Asia, Africa and South America aiming to build smaller regasification facilities or LNG-to-power projects presents barriers for new suppliers, a- she declared.

The move to “inexperienced and less creditworthy buyers will increase the uncertainty that financiers may have about the risk profile of new LNG projects,” Davis said.

But Roald Nashi, who represents investors in energy and infrastructure projects at law firm Kirkland & Ellis, said a cold winter in the northern hemisphere would be good for encouraging the long-term contracts needed to fund projects. power stations.

These long-term contracts “should continue to be available like last year,” Nashi said.

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Reporting by Marcy de Luna, additional reporting by Scott DiSavino in New York Editing by Marguerita Choy

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