HOUSTON, Jan 28 (Reuters) - High global natural gas prices
are breaking a two-year logjam of new U.S. liquefied natural gas
(LNG) projects with at least three of the multibillion-dollar
proposals likely achieving enough supply contracts to start
construction this year, said developers and industry experts.
A Louisiana project that received a green light in 2019 was
the last wholly new U.S. 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-U.S.
trade war and then by the COVID-19 pandemic and environmental
But super-hot demand for the fuel in northern Europe and
China have pushed global gas prices to near record highs,
reviving financing prospects for plants that chill natural gas
into liquid for transport by seaborne tankers.
A key 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 new LNG plants in
the United States and Asia.
RETURN OF CHINA
China stopped taking most U.S. LNG by imposing a 25% tariff
on imports in mid-2019 at the height of a U.S.-China trade war.
But in November, top Chinese energy companies agreed to buy more
U.S. gas than ever before through long term contracts https://www.reuters.com/business/energy/sinopec-signs-20-yr-lng-contract-with-us-venture-global-lng-2021-11-04.
Such contracts are key to winning financing for these $4
billion to $8.5 billion projects and breaking the development
logjam, said Carlos Sole, an attorney at law firm Baker Botts
who has been involved in the development and financing of
multiple U.S. LNG export projects.
"Last year capital was not willing to deploy itself on a
speculative basis without long-term contracts," Sole said.
"Assuming those are achieved, which is the general expectation
given current market conditions, then capital should be
Atop the list of proposals likely to get financial approval
are Venture Global and Tellurian Inc plants, both in
Louisiana, and a Cheniere Energy Inc project in Corpus
Christi, Texas, said Craig Pirrong, a finance professor at the
University of Houston and commodity trading expert.
The banks are finally realizing that this is an existential
issue, said Tellurian Executive Chairman Charif Souki,
referring to the recent lack of energy investments.
Construction on the first phase of Tellurian's Driftwood
project that would export about 11 million tonnes per annum
(MTPA) of LNG, or around 1.5 billion cubic feet per day (bcfd)
of natural gas, could start this summer once financial hurdles
are cleared, he said earlier this month.
The three new projects would increase U.S. export capacity
by about a third at mid-decade. Plants already under
construction should lift peak U.S. capacity to 13.9 bcfd by the
end of this year, estimates the U.S. Energy Information
Administration, 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 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.
Financial go-aheads for projects including Tellurian's
Driftwood, NextDecade Corp'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 LLP who has been involved in financing 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 hurdles for new suppliers, she
The shift to "inexperienced and less-creditworthy offtakers
will increase the uncertainty financiers may have relating to
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 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," Nashi said.
(Reporting by Marcy de Luna, additional reporting by Scott
DiSavino in New York
Editing by Marguerita Choy)