A second wave of US liquefaction investments is coming, but not every project will win approval writes NB Intelligence.
Golden Pass LNG has reached FID.
The price is right, for QP and ExxonMobil, amid part of a broader US investment strategy.
The plant should start in 2024, when a number of facilities around the world should also be coming online, not least Qatar’s domestic expansion project.
US liquefaction plans have come a long way since Charif Souki raised the possibility at Cheniere Energy. These projects have been driven mostly by North American companies, eager to retool plants designed for imports. This has changed, though, with the approval last week of the Golden Pass LNG project by Qatar Petroleum (QP) and ExxonMobil. They will hold stakes of 70% and 30% respectively in the plant, which will be worth more than US$10 billion.
QP is an LNG heavyweight with global experience, although it has previously largely restricted its activities to its home soil. In recent years it has begun moving abroad, though, striking exploration deals – it announced a major find offshore South Africa last week – and now moving into infrastructure.
ExxonMobil, meanwhile, is the US’ second largest producer of gas and has form in bringing on new liquefaction plants, not least at the wildly successful Papua New Guinea (PNG) LNG project.
The two companies – along with ConocoPhillips – operate the 15.6 million tpy LNG import and regasification plant at the Texas site, commissioned in 2010. The second US shareholder decided not to participate in the expansion and is expected to sell the company’s 12.4% stake in the receiving terminal to its compatriot in the near future.
Speaking at the signing ceremony, Qatar’s Minister of State for Energy Affairs and QP president and CEO Saad al-Kaabi set the project in the context of plans, revealed in December, to invest US$20 billion in the US energy sector. He has previously expressed a desire to integrate the company’s international interests along the value chain – rather than having holdings in the infrastructure alone – implying that upstream investments are under consideration.
The Qatari firm has been expanding such business overseas over the past two years – joining consortia led by an array of heavy hitters, including ExxonMobil, Eni, Royal Dutch Shell and Total, on licences in the Americas and to a lesser extent Africa.
The US giant’s statement on the FID noted the pair’s tie-ups in Argentina, Brazil and Mexico – while the company is also a major investor in QP’s home market as one of the main international shareholders in the Qatargas joint venture, which operates the Gulf state’s 77 million tpy of LNG export capacity.
ExxonMobil and other super-majors are expected to pitch later this year for a role on the first expansion project at Qatar’s supergiant North field since the lifting of a 12-year development moratorium nearly two years ago. This comprises a four-train LNG plant at Ras Laffan aimed at increasing gas production by 1.4 million boepd and LNG output by 23 million tpy, to around 110 million tpy.
Contracting is under way – with bids due to have been submitted in late January both for the engineering, procurement, construction and installation (EPCI) package on the requisite wellhead jackets and for the FEED contract for the associated topsides. An FID is due this year.
In addition to the commercial appeal, there is a clear political advantage to such an investment for Qatar. The Middle Eastern state has fallen out with its neighbours and has concerns about the US support shifting away.
The appeal of Golden Pass LNG is that it will be extremely low cost, at around US$640 per tonne. The plant formerly served as a regasification terminal, meaning that most of the required equipment – bar the cooling equipment – is already in place.
Both companies are in the process of advancing LNG projects in other countries. Domestically, QP is working on expanding its current platform of 77 million tpy to 110 million tpy. ExxonMobil is also looking at Mozambique, with an FID planned for this year.
One interesting aspect of the plan is that it will involve three trains. One of the trends emerging elsewhere in the world is a shift to larger processing units, ExxonMobil’s proposed plant in Mozambique, for instance, will have two trains with 7.6 million tpy of output, with QP evaluating similar options for its next expansion.
That the Texan project is going ahead in tandem with these other projects demonstrates the appeal of a brownfield US site taking shale gas from local markets. However, it does put pressure on greenfield proposals in the US, particularly when considered in conjunction with other projects also moving towards starting work, such as in Mozambique, or that have begun, such as the LNG Canada plan in British Columbia.
Golden Pass LNG is the first to reach an FID of what is expected to be a second wave of US LNG export projects. While there are concerns about a lack of future supply, not all of the US’ proposed LNG projects will go ahead.
Three further projects – Magnolia LNG, the Delfin floating LNG (FLNG) development and Lake Charles LNG – appear to be the closest to an FID, as they have their required approvals from the US Department of Energy (DoE) and the Federal Energy Regulatory Commission (FERC) in place.
Other projects are steadily making progress through the regulatory approval process, with Sempra Energy’s Port Arthur LNG and Tellurian’s Driftwood LNG receiving their final environmental impact statements (EIS) from the FERC in January.
Tellurian is a particularly high-profile developer, having been founded by Souki after he parted ways with Cheniere. The company has adopted an integrated model whereby it will also control the production and pipelines supplying the Driftwood terminal. Last year, Tellurian said it aimed to avoid debt by seeking investors to pay US$12 billion up front to fund the terminal, offering in return a stake in the project and the ability to buy fuel at cost, with no mark-up based on changing markets. Souki’s involvement ensures the company will be on investors’ radar and Driftwood appears to be making progress, with an FID tipped for the first half of this year.
The backers behind Lake Charles LNG have also previously said they aim to announce an FID this year. However, these plans could have been dealt a blow by Royal Dutch Shell – one of the project partners – committing to going ahead with the LNG Canada venture.
Magnolia LNG backer LNG Ltd (LNGL) delayed its FID until 2019, citing concerns over trade tensions between the US and China hampering its efforts to secure contracts for the project. And an FID on the Delfin FLNG venture is also anticipated this year, as is one on NextDecade’s Rio Grande LNG, though the latter is still subject to FERC approval.
On top of this, Cheniere – which is almost singlehandedly responsible for the boom in US LNG exports to date – is closing in on an FID on Train 6 at its Sabine Pass plant.
Every project that reaches FID makes it that much harder for the next, pre-FID plan to secure financing and offtakers.