As LNG prices rise, the development of North American projects languishes

Nov 8 (Reuters) – Demand for liquefied natural gas (LNG) has never been higher, but developers in North America are heading into the final weeks of the year without having approved a new project yet.

Global natural gas prices are approaching record highs, as utilities in Europe and Asia vie for all LNG shipments they can get before winter. Global demand for LNG has grown every year since 2012, and has climbed 40% over the past five years, as utilities replace dirtier-burning coal, but supply has not kept up with demand – and has not. will not be for several years.

Market growth has spurred the rapid development of liquefaction terminals in major exporters, including the United States, which is expected to become the largest LNG producer in terms of capacity next year.

However, spending on new projects was halted in 2020 as low prices due to coronavirus-induced demand destruction prompted buyers to forgo signing long-term supply contracts.

In early 2020 and again in 2021, around a dozen companies reported Final Investment Decision (FID) plans on proposed projects. But only one, Sempra Energy’s Costa Azul (SRE.N) in Mexico, started construction in 2020, while many more have been pushed back to 2022.

“We are bracing for a structural shortage of LNG capacity,” said Reid Morrison, global leader in energy consulting at PwC in Houston. “There is reluctance to take a long-term position in natural gas given the net zero commitments that different governments are making.”

JET LAG

Several North American projects could go ahead in 2022, mainly in Texas and Louisiana, when the International Gas Union estimates that global demand will reach around 375 million tonnes per year (MTPA) against 356.1 MTPA in 2020.

But these projects will do little to meet growing demand in the short term since it takes about three to five years for a new project to produce LNG.

“This tight market could extend until 2025,” said Anatol Feygin, commercial director of US LNG producer Cheniere Energy Inc (LNG.A). The market “demands the addition of new capacity,” he said.

Two projects could get the green light later this year: Woodfibre from Pacific Energy Corp Ltd in British Columbia and Plaquemines from Venture Global LNG in Louisiana.

The US government has granted Venture Global permission to begin initial work on the Plaquemines site, and units of China Petroleum & Chemical Corp (600028.SS), or Sinopec, have entered into agreements to purchase LNG at long term with the company. Read more

Plaquemines would produce up to 20 MTPA of LNG, or 2.6 billion cubic feet per day (bcfd) of natural gas. One billion cubic feet is enough for about five million homes per day. It should be ready to produce its first LNG by 2024.

Venture Global declined to comment. On its website, the company announced its intention to make a decision on Plaquemines in the fourth quarter of 2021.

Venture Global has approximately 70 MTPA of LNG export capacity under construction or development in Louisiana, including the 10-MTPA Calcasieu in Louisiana, which will likely begin production this year.

Pacific Oil and Gas’ wood fiber would produce around 2.1 MTPA of LNG, but not until 2025, analysts estimate. The company has not made a final decision on the build, although it recently agreed to sell 1.5 MTPA of LNG to UK oil major BP PLC (BP.L) over 15 years. Read more

“We are continuing to finalize our construction contract and are optimistic to move the project forward this year,” Woodfibre LNG spokeswoman Rebecca Scott told Reuters.

Reporting by Scott DiSavino; edited by John Stonestreet

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