High global natural gas prices are breaking a two-year logjam of new US liquefied natural gas projects with at least three of the multi-billion-dollar proposals likely to achieve enough supply contracts to start construction this year, developers and industry analysts said.
A Louisiana project approved in 2019 was the last wholly new US plant to receive a go-ahead, benefiting from then-strong demand from China and utilities swapping to LNG from coal. A dozen others were stalled, first by the China-US trade war and then by the coronavirus pandemic and environmental concerns.
But great demand for the fuel in northern Europe and China has pushed global gas prices to near record highs, reviving financing prospects for plants that chill natural gas into liquid for transport by sea.
A benchmark price for natural gas deliveries in northern Europe has more than quadrupled from a year ago, to about $30 per million British thermal units per day (mmBtu).
Europe's declining gas production and increased dependency on Russia for its supplies also has driven worldwide LNG prices higher and focused attention on the need for more LNG plants in the US and Asia.
China stopped taking most US LNG by imposing a 25 per cent tariff on imports in mid-2019 at the height of a US-China trade war. But in November, Chinese energy companies agreed to buy more US gas than before through long-term contracts.
Such contracts are central to winning financing for these $4 billion to $8.5bn projects and breaking the development logjam, said Carlos Sole, a lawyer with Baker Botts who has been involved in the development and financing of US LNG export projects.
"Last year, capital was not willing to deploy itself on a speculative basis without long-term contracts," Mr Sole said. "Assuming those are achieved, which is the general expectation given current market conditions, then capital should be available."
Atop the list of proposals likely to win financial approval are Venture Global and Tellurian plants, both in Louisiana, and a Cheniere Energy project in Corpus Christi, Texas, said Craig Pirrong, a finance professor at the University of Houston and commodity trading analyst.
“The banks are finally realising that this is an existential issue,” said Tellurian executive chairman Charif Souki, referring to the recent lack of investment.
Construction on the first phase of Tellurian's Driftwood project that would export about 11 million tonnes of LNG a year, or around 1.5 billion cubic feet per day (bcfd) of natural gas, could start this summer once financial hurdles are cleared, Mr Souki said this month.
The three new projects would increase US export capacity by about a third by the middle of the decade.
Plants already under construction should take peak US capacity to 13.9 bcfd by the end of this year, the US Energy Information Administration estimates, a figure surpassing Qatar and Australia, now the two largest LNG exporters.
"This is the best macro environment that the LNG business has ever seen," Delfin LNG chief executive Dudley Poston said in an interview, adding that he was "very confident" that Delfin's project off the Louisiana coast would be approved for construction this year.
Still, optimism has never been in short supply among project developers despite repeated setbacks.
partner at Morrison & Foerster
Financial approvals for projects including Tellurian's Driftwood, NextDecade's Rio Grande, and Sempra Energy's Port Arthur LNG plants were promised and delayed last year, in some cases for a second time.
Investors remain wary of investing in new projects in which the expected revenue stream is supported by inexperienced or untested buyers, said Tessa Davis, a partner at law firm Morrison & Foerster who has been involved in financing LNG projects in Indonesia and Qatar.
The rise of LNG buyers in South-East Asia, Africa and South America aiming to build smaller regasification facilities or LNG-to-power projects presents hurdles for new suppliers, she said.
The shift to "inexperienced and less-creditworthy offtakers will increase the uncertainty financiers may have relating to the risk profile of new LNG projects", Ms Davis said.
But Roald Nashi, who represents investors in energy and infrastructure projects at law firm Kirkland & Ellis, said a cold northern hemisphere winter will be good for encouraging long-term contracts needed to finance plants.
Those long-term contracts "should continue to be available as last year," he said.
