Back in February, leading energy information company, Energy Intelligence, reported that interest in long-term LNG projects remains robust despite the Biden administration pausing new licenses for LNG export projects still in the planning pipeline. Back then, the Department of Energy justified the pause by highlighting lingering fears that shipping large volumes of U.S. gas overseas could erode America’s competitive advantage of cheap energy critical for energy-intensive industries such as steelmaking and petrochemicals and also seeks to address concerns by environmental activists who have argued that the entire LNG manufacturing, delivery and consumption cycle has a much higher carbon footprint than currently touted.
Well, the DoE has just reiterated that position: In a long-awaited report, released on Tuesday, the Energy Department claims that domestic energy prices would sharply increase if the U.S. conducts unrestricted exports of liquefied natural gas (LNG).
“To date, U.S. consumers and businesses have benefited from relatively stable natural gas prices domestically as compared to those in other parts of the world who have faced far greater price volatility,” Energy Secretary Jennifer Granholm said in a statement. “[But] the more volumes of U.S. LNG are exported, the greater the risk of this global price volatility being imported into our domestic market and impacting U.S. consumers and manufacturers.”
The DoE report comes at a time when U.S. natural gas prices have been surging. U.S. natural gas futures rose toward the $3.35 per MMBtu on Wednesday, not far from the one-year high of $3.5 tested earlier in the month, thanks to bets on stronger global LNG demand in the upcoming year. Uncertainty regarding gas flows to Europe raise demand for U.S. LNG at the turn of the US presidency. Contrary to the Biden administration, incoming President Trump has signaled that his administration is against holding back on U.S. LNG export permits.
The volume of natural gas flowing to the United States' seven liquefied natural gas (LNG) export plants was on track to hit a 10-month high, according to data from financial firm LSEG. The surge in feedgas was partly chalked up to flows to Venture Global LNG's Plaquemines plant in Louisiana after it commenced production earlier in the week. Last year, the U.S. became the world’s largest LNG exporter ahead of Qatar and Australia.
LNG Purchase Agreements
According to a recent LNG report WoodMackenzie, 58 million tons per year (tpy) of U.S. LNG sales purchase agreements (SPAs), capacity agreements, and heads of agreements (HOAs) were signed in the first nine months of 2024 compared with 94 million tpy of new LNG SPAs and HOAs agreed upon in the whole of 2023. That’s not too shabby given the circumstances that prevailed for much of that period. Even better, LNG contracting is now free to proceed unhindered after a U.S. federal judge struck down Biden’s pause. Back in July, U.S. District Judge James Cain in Lake Charles, Louisiana, sided with 16 Republican-led states in holding that the U.S. Department of Energy's freeze on approvals of LNG exports was "completely without reason or logic."Cain said these states were likely to succeed in showing the pause contravened the Natural Gas Act of 1938.
There were several notable trends in that WoodMac report. First off, contracting by traditional buyers (end users) for use in their home markets clocked in at 38 million tpy of long-term deals, just 12 million tpy shy of last year’s record. Second, big deals are dominating again, with 60% of the volumes signed this year having a deal size greater than 2 million tpy. Meanwhile, dealmaking continued in the U.S. despite the pause, although total volumes contracted from U.S. projects declined. A total of 18.9 million tpy (including the 5 million tpy Aramco deal) new U.S. LNG SPAs and HOAs were inked in the first eight months of 2024, with activity focused more on projects less affected by the hiatus. Notable deals include Rio Grande LNG Train 4 with ADNOC for 1.9 million tpy and Aramco for 1.2 million tpy. Texas LNG also signed tolling agreements, SPAs and HOAs for 3 million tpy with EQT Corp. (NYSE:EQT) and other counterparties as the company tries to achieve commercial thresholds required to raise debt financing for its project.
In April 2024, Cedar LNG signed the second 20-year LNG capacity deal for 1.5 million tpy with Pembina Pipeline Corp.(NYSE:PBA) following a similar deal with ARC Resources (OTCPK:AETUF) signed in 2023. Woodfibre LNG signed a third and final deal with BP Plc (NYSE:BP) that left it fully booked, while Texas-based Mexico Pacific completed marketing for its first three trains.
Overall, Wood Mackenzie expects contracting activity to remain high, a bullish prediction for U.S. LNG sector considering that additional North American LNG contracting is required for projects to move forward.
By Alex Kimani for Oilprice.com
