US LNG to drive global market by 2030

The recent momentum in new US LNG project development will put the country at the heart of the global market.

It will be positioned as Europe’s largest supplier of gas with a huge potential for exports to swing between Europe and Asia based on price signals and changes in demand.

The US and Qatar - which will also expand production later in the 2020s - will together account for over 50% of global LNG supply by the end of the decade, according to ICIS data.

With the bulk of US LNG to be sold on a destination-free basis, and amid greater demand competition between Europe and Asia, the commoditisation of LNG will continue along with the significance of market pricing.

This will include the ICIS TTF benchmark that underpins Europe’s gas market and has a growing global role.

Amid three final investment decisions (FIDs) at US LNG projects in 2023, further US LNG projects are in stiff competition not only with other domestic projects but also with Qatar’s growth plans, with the latter expecting a record year of offtake deals.

But it is likely that US LNG production could still expand further by the end of the decade if those projects with commercial momentum can take FID within the next year.

While Qatar confirmed 6 million tpy of long-term offtake agreements in June 2023 alone, US LNG projects lined up 21 million tpy so far this year.

The crowded field of proposed new US LNG projects and expansions makes it challenging to identify which project could be next to take FID after NextDecade’s recent progress at Rio Grande.

But a combination of Asian and global portfolio companies will continue to sign term deals.

Decarbonisation targets in Europe will limit end buyers from signing 20-year contracts, with portfolio companies expected to conclude supply deals that will push projects to FID and move non-destination specific supply to Europe when market conditions dictate.

European LNG demand will remain robust until 2030, participants said at the LNG 2023 conference in Vancouver in July.

ICIS expects more significant reductions in European gas demand by 2030.

But with the complete end to Russian gas and LNG to Europe planned for 2027, LNG supply from other regions will remain critical to Europe’s energy balance well beyond 2030.

Buyer preference, costs

So far this year, three US projects have successfully reached FID with more aiming for 2023 financial closes.

The FID roster includes phase two of Venture Global’s Plaquemines LNG, Sempra’s Port Arthur LNG and most recently, the first phase of NextDecade’s 27 million tpy Rio Grande LNG project in Brownsville, Texas.

Analysis of capital expenditure costs shows that US LNG brownfield projects remain competitive on a global basis even if costs are higher when compared to the first generation of plants.

Venture Global and Sempra’s projects could come in at around US$1000/t if costs do not escalate, with NextDecade in the mid US$800s/t. This compares with around US$900/t for Qatar’s expansion and a much higher cost of over US$1500/t for Mozambique LNG, pending any changes to costs that materialise before construction resumes.

Global balance

By 2026, ICIS estimates global LNG demand will stand at 450 million t, up from 415 million t in 2023.

After a period of tightness, the market will loosen as new production starts, although the speed will depend on the ramp-up profile of new projects which can vary significantly.

New LNG production could be more than 114 million t in 2026 compared with today, stepping up to 186 million tpy by 2029 and taking total supply to around 600 million tpy. This would likely trigger an oversupply in global LNG markets and lower market prices.

The forward ICIS TTF price curve reflects this expectation with 2026 and 2027 markets priced well below 2023.

The first wave of US LNG export projects in the mid-to-late 2010s suffered delays which led to a tighter market balance than had been expected but ultimately the new production triggered a major oversupply and fall in spot pricing.

More US LNG will also mean a greater role for Henry Hub pricing in the global market.

The forward US gas curve currently looks attractive to potential LNG buyers but with US production set to more than double by 2030 there is a rising chance that Henry Hub prices may correlate more closely with delivered prices in Europe and Asia.

This could reinforce the position of the US as the key global swing supplier with the ability to cut LNG exports if margins turn negative.

Japan’s equity play

Japanese buyers have committed to 2 million tpy of US LNG offtake this year, split between Venture Global’s CP2 project and Train 1 at NextDecade’s Rio Grande LNG.

Buyers are interested in equity stakes and as a result are more likely to look to US LNG, sources said.

In July, an unnamed Japanese buyer consortium signed a heads of agreement with US-based Energy Transfer for 1.6 million tpy on a 20-year basis from the proposed Lake Charles LNG, with an option to convert the offtake agreement to an equity stake for the same volume.

At the LNG 2023 conference, US Cheniere said it has had “very good” commercial engagement with Japanese customers for cargo purchases and some mid-term agreements but does not yet have a Japanese long-term customer and is “working hard to change that”.

FID challenges

Amid the crowded US LNG project landscape, buyers are taking their time to weigh up options, although some are starting to show a preference for developers with a ‘known track record’, sources said.

Rising project costs and permitting delays have also limited commercial progress.

Over 65 million tpy of additional North American LNG projects yet to take FID could be considered to be at advanced stages of discussions with buyers.

NextDecade secured FID in July but this was months after their original plans.

Sources said NextDecade had reached out to buyers to inform them there could be a price increase on the liquefaction fee within their long-term contracts.

In May, Sempra said it could delay the FID timeline for the proposed one-train expansion at Cameron LNG, “to reduce construction risk, project costs and optimise the construction schedule”.

Sources said higher-than-expected project costs associated with the proposed electric-drive compression for Train 4 have delayed the timeline. Developers are looking for ways to cut costs to stand out.

For example, the proposed 8.4 million tpy Commonwealth LNG will use modular fabrication mostly done in Asia instead of traditional stick-built construction, a move the company says will save a year and will cut down on costs.

The project is now targeting FID sometime between 4Q23 and 1Q24.

The company has not yet announced any additional sales and purchase agreements beyond its 2.5 million tpy deal with Australia’s Woodside.

Written by Fauzeya Rahman, LNG Americas Editor at ICIS.

Ed Cox, Kintan Andanari, Yueyi Yang, Yun Xie, Yasmin Yonan, Alex Siow and Fei Xu contributed to this story.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/28082023/us-lng-to-drive-global-market-by-2030/