LNG remains a major driver for the U.S. natural gas industry and will play an even larger role for incremental demand.
NGI reviewed the quarterly conference calls of the major players in the liquefied natural gas industry, and while the Biden administration’s pause on authorizing new export projects as well as the emergence of data centers may have overshadowed LNG, there is about 11 Bcf/d of new LNG demand under construction in the United States.
Baker Hughes Co. (BKR) – The company continues to expect global LNG final investment decisions (FID) of about 100 million metric tons/year (mmty) through 2026. NextDecade Corp. believes 145 mmty would be needed by 2030, which would add close to 50% upside to the BKR number.
Cheniere Energy Inc. (LNG) – Cheniere management announced it does not expect any lengthy outages or maintenance this summer, which caused the June Henry Hub contract to increase 5% in the immediate aftermath.
Range Resources Corp. (RRC) – Range Resources’ management discussed European gas supply by source, and displayed a suggestion that U.S. LNG has increased from 5% of total European gas supply in 2020 to 21% in 2023. Obviously, the Russia/Ukraine conflict has played a major role in this, but U.S. gas is becoming more baseload supply to the continent. The recent decision to shutter the Groningen gas field in Norway would likely only enhance this going forward.
TotalEnergies SE (TTE) – Both TotalEnergies and Chesapeake Energy Corp. noted that elastic global buyers like China and India have been increasing their purchases of LNG when international prices approach $8/MMBtu. That may change, but assuming that $8 represents a floor for international gas prices, it could also be assumed that the long-term cost curve for U.S. natural gas is $3.00, the average U.S. liquefaction fee is $2.50, an average 1-year charter rate of $115,000 for a 174,000 cubic foot vessel and that all shipments go to Asia. Even this “fully loaded cost” scenario would lead to a Gulf Coast free-on-board (FOB) netback price that is roughly the same as the 115% of Henry Hub variable supply cost. Gulf Coast FOB prices below 115% of Henry Hub are a recipe for cargo cancellations. Of course, this assumes liquefaction fees and even charter rates are all variable costs. In the shorter-run, those costs are sunk, particularly for portfolio players. This would put the variable only figure firmly into positive territory. The point being, even though the industry calls these arbitrage spreads, there does appear to be some long-term structural positive margin built into the curves at this time. Financial theory dictates that arbitrage opportunities should be whittled away, but that is complicated for the LNG industry, which carries high barriers to entry. There would almost certainly be times when the arbitrage turns negative and cargoes from the United States are canceled, as was the case in 2020. Overall, however, this longer-term price and cost paradigm may be a structural positive for U.S. natural gas demand.
Williams (WMB) – There is a growing amount of headline risk to building new LNG export facilities in the Lower 48. They include, but are not limited to, the Biden’s administration’s pause on project authorizations, pipeline right-of-way issues in Louisiana, disputes between Venture Global LNG Inc. and its offtakers at Calcasieu Pass and one of Golden Pass’ contractors Zachry Group declaring bankruptcy. The latter would likely push the start date back of that facility into the second half of 2025, but one important positive to note would be underground storage. Williams revealed that rates have increased to the point where brownfield expansions are in the money, and greenfield projects may be as well in certain locations within the Gulf Coast region. Moreover, the Biden permitting pause is expected to be lifted not long after the presidential election in November. It’s not all doom and gloom.
Enbridge Inc. (ENB) – Enbridge has delivered a little bit of gas to the Gator Express pipeline that will move supplies to Plaquemines LNG. The pipeline is “under construction now, and we're working to get that in by the end of the year,” said Cynthia Hansen, president of Gas Transmission & Midstream. NGI has begun including flows to Plaquemines in the North American LNG Export Flow Tracker.
New Fortress Energy Inc. (NFE) – New Fortress Energy was expected to start first commercial LNG for its fast LNG facility located offshore Altamira, Mexico, but that is now delayed until June. Still, it would end up being just a bit more than three years to get that project in-service, versus the five-plus it typically takes for larger, land-based structures. NFE would be able to apply lessons learned from its first foray to its other planned FLNG projects.
TC Energy Corp. (TRP) – As for an update on Canadian LNG, it is expected volumes could start showing up at the Willow Valley interconnect between TC Energy’s Nova Gas Transmission Ltd. and Coastal GasLink pipeline systems shortly, which would also be monitored via NGI’s North American LNG Export Flow Tracker. Cedar LNG has yet to reach FID, but Baker Hughes noted it has booked orders from Black & Veatch. The Ksi Lisims project hasn’t provided an official update since April 27, 2022, but the venture is still very much in place, as evidenced by Murphy Oil Corp. announcing during its 1Q2024 earnings call that it has joined Rockies LNG, a consortium of Western Canadian producers working to develop the project. Finally, Tourmaline Oil Corp. in its latest investor relations slide deck suggested that more than 80% of sub-$2.00 breakeven gas resources in North America are located in Western Canada, giving the region a feed gas advantage over other areas in North America.
