The global LNG market continued growing in 2023 and faces a new set of challenges this year as it continues working to meet projected demand growth. Read what NGI analysts learned during 4Q2023 earnings season and how they view trends in the global natural gas market moving forward.
Cheniere Energy Inc. (LNG): Statistics from Cheniere and Shell plc (SHEL) show global liquefied natural gas exports grew by 3% to 403 million metric tons in 2023. A chart in the Flex LNG Ltd. (FLEX) 4Q2023 presentation shows the U.S. grew its LNG exports by 13% year-over-year. That made the United States the world’s No. 1 LNG exporter in 2023 with what we calculate is an estimated market share of roughly 21%.
Baker Hughes Co. (BKR): Baker Hughes noted that with an estimated global nameplate capacity of 491 million metric tons/year (mmty) last year, effective utilization averaged 86%. The firm said utilization helped keep the LNG market tight through the year. Looking into 2024, management forecasts LNG demand to increase by 2%, which should result in utilization rates remaining at strong levels as they expect just 15 mmty of nameplate capacity additions coming online this year. That’s consistent with the 7-20 mmty estimate posited by Shell, the 8 mmty from TotalEnergies SE (TTE) and 13 mmty by Flex LNG. We note that part of the expected incremental supply in 2024 is Arctic LNG 2 in Russia, which will have a limited market due to sanctions against it.
We believe the midpoint of that 7-20 mmty forecasted range could prove to be a tad conservative. Venture Global LNG Inc. stated its second facility, Plaquemines LNG, is expected to produce first LNG in 2024, possibly as early as this summer. That’s a faster timeline than we believe the overall market had been expecting. We estimate the first phase of Plaquemines will provide roughly 13 mmty of capacity. The 13 mmty of capacity from Venture Global plus just one of three trains at Arctic LNG 2 in Russia equals 20 mmty.
LNG: Cheniere, which we estimate accounted for 50% of total U.S. LNG export cargoes during 4Q2023, expects to produce approximately 45 million tons of LNG this year, inclusive of planned maintenance at both the Sabine Pass and Corpus Christi liquefaction plants. That guidance is roughly flat year-over-year. The next wave of U.S. LNG is coming, but it won’t start hitting in earnest until next year.
EQT Corp. (EQT): With EQT’s announced 15-year tentative deal with Texas LNG to sell 0.5 mmty of natural gas to that facility, presumably that’s another North American producer that has added future international price exposure in an effort to diversify away from pricing tied to the Henry Hub. EQT has signed similar deals with the Commonwealth and Lake Charles LNG projects. We believe the majority of gas transacted in the United States is influenced to some degree by prices movements at Henry Hub simply because basis differentials are based on regional price differences versus Henry. Other North American producers with future production tied to international natural gas prices include APA Corp., ARC Resources Ltd., EOG Resources Inc., Chesapeake Energy Corp. and Tourmaline Oil Corp.
Marathon Oil (MRO): Following the expiration of their legacy Henry Hub-linked LNG contract at the end of last year, Marathon Oil CEO Lee Tillman said their Equatorial Guinea “integrated gas business is now fully realizing global LNG pricing.” This is certainly consistent with a reduction in global Henry Hub indexed long-term sales and purchase agreement (SPA) deals in 2023. We note that in 2021 and 2022, there was a tight correlation between new LNG SPAs signed by North America sellers and those tied to the Henry Hub. They have since declined.
Excelerate Energy (EE): But that doesn’t mean Henry Hub priced LNG deals are dead. In February 2023, Excelerate Energy signed a 20-year SPA to purchase 0.7 mmty of LNG from Venture Global starting in 2027 in an effort “to meet the demand of our customers that have an appetite for Henry Hub volumes,” CEO Steven Kobos said. “There's definitely interest from some parties for Henry Hub indexed long-term deals.”
Natural Gas Intelligence (NGI): Not surprisingly, the investment community was abuzz with questions about the temporary pause in non-free trade agreement LNG export licenses instituted by the Biden Administration in January. NGI’s managing editor of LNG Jamison Cocklin wrote the pause was put in place to allow the U.S. Department of Energy (DOE) to assess “how natural gas exports impact the environment, energy security and domestic prices.” We believe the review is likely to last beyond the November U.S. presidential election.
TC Energy (TRP): According to TC Energy’s Stanley Chapman, COO of natural gas pipelines, “the stay impacts about 20 or so projects that are currently in the approval queue, but it does not impact projects that are already approved.”
Energy Transfer (ET): Energy Transfer CEO Thomas Long noted the DOE “most recently conducted similar studies in 2019, and based on the results of these studies, the DOE subsequently approved several LNG export projects.” He added that “the recently announced moratorium on approvals of LNG export creates uncertainty as to when the DOE studies will be completed and whether the criteria for approving LNG export projects will be changed.” Similarly, Cheniere CEO Jack Fusco said “while this decision does not currently impact our expansion projects or our FERC processes at Sabine Pass and Corpus Christi, it does introduce regulatory and permitting uncertainty into the U.S. LNG industry as a whole.”
BKR: Of course, not all of those proposed 20 U.S. projects were going to reach a positive final investment decision (FID) even if they all receive export permits in a timely fashion. But as Baker Hughes CEO Lorenzo Simonelli said, “there's clearly projects internationally that can take the opportunity and offset what was anticipated from U.S. LNG over time.” And that’s the biggest risk. We believe one of the main reasons so many proposed U.S. LNG export projects have yet to reach FID is that the global LNG export market is extremely competitive. It was difficult enough for U.S.-based project developers to sign on new offtakers without the export pause, but a year or more delay in the process will provide a window for competing projects to pounce. For example, Qatar announced February 25 earlier this year that it plans to add another 16 mmty of liquefaction capacity to its already aggressive expansion plans. The Biden Administration announced the temporary non-FTA export pause January 26.
We also note that during its 3Q2023 earnings call, Baker Hughes expected 80 mmty of global FIDs in 2023 and called for “similar year-over-year levels of FID activity in 2024,” with between 30-60 mmty in both 2025 and 2026. Baker had no change to its 2025-2026 view during its 4Q2023 call, but they seemingly lowered their target for 2024 positive FID activity to 65 mmty. We wouldn’t necessarily call 65 similar to 80, because that is likely a difference of 3-4 trains not reaching FID, most likely in the United States. Moreover, the 2025-2026 FID activity could have a more international mix at the expense of U.S. projects.
TRP: Meanwhile, U.S. LNG projects that are already under construction continue to plow ahead. U.S. (and for now, total North American) LNG feed gas demand is currently roughly 14 Bcd/d, and based on projects under construction, TC Energy sees that total rising to more than 30 Bcf/d by 2030, including 3-4 Bcf/d from Canada, 2-3 Bcf/d from Mexico and the remainder from the United States. According to NGI’s North American LNG Export Project Tracker, LNG Canada accounts for 1.8 Bcf/d of that, with Woodfibre chipping in another 0.3 Bcf/d. LNG Canada could bring the total to nearly 4 Bcf/d if it greenlights Phase 2, and we believe Cedar LNG and Ksi Lisims LNG could add another 2 Bcf if momentum continues at those two projects. In Mexico, Sempra Energy’s (SRE) Energia Costa Azul Phase 1 (expected in-service in 2025) and the impending startup of New Fortress Energy Inc.’s (NFE) liquefaction project offshore Altamira combine for 0.6 Bcf/d. We also expect NFE’s second project in Mexico to add another 0.2/d when that is online in early 2026.
NFE: As New Fortress’ CEO Wesley Edens said during the company’s year-end earnings call, CFE is their partner on FLNG 2 and has the support of the Mexican government. “The President, his cabinet, the successor administration have all expressed strong desire for this contract, this project to move forward quickly,” he said of the Altamira project.
“I'll tell you that everything that we can apply for now has been applied for and everything is in the path of moving to approvals,” Edens added. “So again with the government effectively as your partner here with massive financial incentive themselves for this project to get online, again, we're using existing infrastructure that they're paying for and not really getting the benefit of now, plus the profits in the project, make this extremely attractive to them, and we don't expect any challenges going forward.”
That leaves another 1.2 Bcf/d to reach the bottom of that 2-3 Bcf/d estimate for Mexico, which just so happens to be the size of Phase 1 of the proposed Saguaro LNG project off the coast of Sonora. That project already has all of its necessary approvals. We aren’t making any predictions, but we note that Oneok (OKE) expects to make a decision about whether to go ahead with its Saguaro Pipeline by mid-year 2024. Mexico is also a partner of the Saguaro LNG project, by the way.
Williams Companies (WMB): More LNG export facilities are going to increase the need for storage. As Williams COO Michael Dunn observed on WMB’s Analyst Day and 4Q2023 call, when U.S. LNG export facilities “lose a train, you’ve got 2-3 Bcf/d you’ve got to find a home for that day. It really needs to go into storage, you can’t back it into the gathering systems. That’s a lot of gas that needs to find a home.” A lesson the market learned in June 2022 when an explosion at the Freeport LNG facility sent 2 Bcf/d of feed gas back into the market and contributed to lower spot market prices at the time. Interest in storage projects continues to grow, with even Mexico’s state power company, Comisión Federal de Electricidad, in Mexico getting into the act. Market rates for storage have been creeping higher, but we believe still aren’t quite high enough to backstop a massive wave of greenfield projects just yet.
