US LNG Series: The First and Second Waves of US LNG Exports

June 14, 2019 | By Joe Webster

In this installment of Enkon Energy Insight, we’ll examine the first and second waves of domestic Liquefied Natural Gas (LNG) exports. In this series we’ll discuss export conditions, headwinds and drivers for the second wave of LNG projects, and, finally, global LNG supply-demand balance. Let’s take a brief tour through the history of US natural gas before diving into the first and second waves of domestic LNG exports.

The US was a net natural gas importer of 13.7 Bcf/d in 2010; by 2017, the United States had become a net natural gas exporter, exporting over 4.2 Bcf/d of LNG by March 2019. Technical advances in hydraulic fracturing, access to capital markets, and favorable US legal and regulatory frameworks encouraged the US shale gas boom.

As improbable as it seems today, US companies were constructing LNG import terminals as late as 2011. Most of the natural gas industry quickly realized, however, that shale gas production in the Appalachian and Permian basins would curtail future LNG imports. Booming domestic production and limited pipeline export opportunities to Canada and Mexico led the industry to scrap plans for additional LNG import terminals. Finally, as Asian LNG prices surged amid the Fukushima disaster and Japan’s temporary moratorium on nuclear energy, US companies began to convert existing LNG import terminals into export terminals, while others considered building new greenfield facilities. As of June 2019, there are 19 existing, under construction, approved, proposed, and pre-filing LNG export projects in Texas and west Louisiana.

LNG Alley: LNG Projects in TX/WLA

Cheniere Energy operates 2 of the 3 existing Texas/WLA export terminals and, importantly, pioneered the first wave of US LNG exports. Under its then-CEO Charif Souki, Cheniere reconfigured an import facility into an export terminal, secured long-term contracts for future deliveries, and steadily resolved legal and regulatory barriers to US LNG exports. Cheniere’s Sabine Pass facility shipped its first LNG cargo to Brazil’s Petrobras on February 24, 2016, heralding a new era in modern US LNG exports.

The first four trains at Cheniere’s 2.4 Bcf/d Sabine Pass terminal and Dominion’s 0.7 Bcf/d Cove Point facility ramped up operational capability from 2016 through 2018. The success of the two trial export projects, coupled with increasingly robust US domestic natural gas production, inspired additional LNG projects. The so-called “first wave” of LNG projects includes Sabine Pass’s five existing trains; Dominion’s Cove Point facility; a small Kinder Morgan facility in Elba Island, GA; three trains at Cheniere’s Corpus Christi facility; three trains at Sempra LNG’s Cameron terminal in Louisiana; and, finally, Freeport LNG’s 3-train export terminal in Texas. The “second wave” is defined as Train 6 at Sabine Pass, Cameron LNG’s Train 4 and 5, QP/ExxonMobil’s 3-train Golden Pass LNG terminal, and Venture Global’s 10-train terminal at Calcasieu Pass.

Enkon expects significant attrition for proposed projects amid dark economic and geopolitical clouds on the horizon. There are growing signs of a slowdown in world economic growth; many economists believe a recession is imminent. Geopolitical tensions could exacerbate any economic difficulties. Uncertainty over US-China economic relations and, specifically, Chinese tariffs on US LNG exports has impaired US LNG capacity build-out. China currently imposes a 25% tariff on US LNG imports, effectively eliminating spot US-to-China LNG cargoes. There have been murmurs of new LNG contracts between US suppliers and Chinese buyers, but we’re skeptical of their sustainability due to the likely recurrence of US-China economic and political tensions. Many projects (probably most) won’t make it past Final Investment Decision.

After accounting for projects that will not likely never be built, we expect the 2^nd wave of US LNG projects to add nearly 4.7 Bcf/d in LNG export capacity by 2024, lifting total US LNG export capacity to a shade under 16.0 Bcf/d:

In a forthcoming Insight we’ll discuss the headwinds facing US and world LNG projects.