Feeling The Chill

"We have an extreme propensity in U.S. markets to overbuild infrastructure,” Anthony Scott, an analyst with BTU Analytics LLC, said during a recent conference call to discuss the energy consultancy’s 85-page “Getting to the Gulf—Can We Supply Wave 2 LNG?” report. 

“If you look at LNG imports as an example, many of the LNG export facilities exist today because they were LNG import facilities that were ultimately never utilized.” 

The next wave of LNG demand, which the BTU analysts believe will last through 2030, will be much greater than it is now, especially with China and other Asian nations demanding more and more of the natural gas resource. The anticipation has brought about more investment projects for additional pipelines from natural gas producing basins like the Permian, Haynesville and Eagle Ford, as well as export facilities around the Gulf Coast. 

Statistics show U.S. LNG exports rose 60% last year, and the nation is projected to be the world’s largest exporter of the fuel by 2024. Reuters reported as 2020 began that prices in Europe and Asia were down by around 40% last year.
Morgan Stanley and Energy Aspects Ltd. analysts said some U.S. LNG export terminals could shut temporarily this year due to lack of demand. 

Lower prices and weak demand could threaten the multiple LNG projects currently in development. Yet some analysts are already speaking in terms of second and third waves of LNG export terminals around North America, with latecomers viewed as increasingly speculative. To be sure, a few of the original projects may stumble, while some of the aspirational plans are likely to push across the finish line and start making cold in the new decade. 

Rio Grande

NextDecade Corp. announced in late 2019 that the Federal Energy Regulatory Commission (FERC) issued an order authorizing the siting, construction and operation of its proposed Rio Grande LNG export facility at Brownsville, Texas, and associated Rio Bravo Pipeline. Earlier in the year, Bechtel Corp. was awarded the engineering, procurement and construction (EPC) contract for the first phase of Rio Grande. NextDecade, and rival Tellurian Inc., are publicly traded pure-play operations. The initial stage of the Brownsville plan comprises three liquefaction trains, two 180,000­cubic meter storage tanks and two marine berths. An additional storage tank and truckloading facilities are being considered. 

NextDecade plans to commence commercial operations in 2023. 

In the midstream sector, NextDecade plans for the Rio Bravo pipeline to deliver gas from the Agua Dulce gas pipeline hub to Brownsville. The line is to comprise twin 42-inch pipes running 137 miles with three 180,000-horsepower compressor stations. Total capacity would be 4.5 Bcf/d. There would be interconnection with eight existing pipelines, with several additional pipelines planned from the Permian Basin’s Waha hub to Agua Dulce. The company said each leg of the Rio Bravo pipeline would support three trains at Rio Grande LNG, implying a second-phase twin of the first with total projected liquefaction capacity of 27 million tonnes per annum (mtpa). 

In addition to any expansion at Brownsville, NextDecade also has proposed a Galveston Bay LNG terminal at Texas City, Texas. Its projected operational date is set at 2027. 

Meanwhile, Tellurian and Petronet LNG Ltd. India signed a memorandum of understanding to negotiate Petronet taking an equity stake in Tellurian, as well as the purchase of up to 5 mtpa of LNG from Tellurian’s Driftwood liquefaction complex when it comes into service. A final investment decision (FID) could come in early 2020, with a possible start of liquefaction in 2023. 

The companies said they hope to reach a formal commitment by the end of first-quarter 2020. 

Petronet is India’s largest importer of LNG. The Driftwood project includes natural gas production, gathering, processing and transportation facilities and, ultimately, as much as 27.6 mtpa of LNG on the Calcasieu River near Lake Charles, La. FERC authorized the LNG facility and the 96-mile pipeline to supply gas in 2019. 

Shell slows 

Royal Dutch Shell Plc delayed the start date for its planned LNG export terminal venture to 2025 in late 2019. Shell’s 50:50 partner is Energy Transfer LP, which owns an import regasification terminal at Lake Charles that would be converted to liquefaction. Several trains are envisioned for a proposed capacity of more than 16 mtpa. 

The project is fully permitted, uses existing infrastructure and benefits from abundant natural gas supply and proximity to major pipeline infrastructure in South Louisiana, including Energy Transfer’s vast network. Shell’s stated reason for the delay is the time needed to digest its acquisition of BG Group Plc, but the longer time line makes a virtue of necessity in avoiding an anticipated LNG glut in 2023-2024. 

Commonwealth LNG filed permits with FERC for a proposed liquefaction project on the Calcasieu at Cameron, La. The project calls for as many as six gas liquefaction trains each with a capacity of 1.4 mtpa, for a total capacity of 8.4 mtpa. 

Also planned are six LNG storage tanks, each with a capacity of 40,000 cubic meters, a marine-loading berth capable of loading LNG carriers up to a capacity of 216,000 cubic meters, and a 3-mile, 30-in.-diameter pipeline to connect to gas supply. 

Commonwealth said it expects to take an FID on the project in the fourth quarter of this year, with commercial operations possible as early 2024.

Commonwealth, formerly known as Waller LNG Services LLC, is a private venture. It has been in discussions with trading house Gunvor Singapore about a 15-year purchase agreement for 1.5 mtpa. 

First wave 

There are other projects, the tail end of the first wave, that appear to be on firmer footing and closer to making cold. These are in addition to multiple LNG liquefaction plants now in operation and exporting—among them Cheniere Energy Inc.’s Sabine Pass terminal in Cameron Parish, La.; Dominion Energy Inc.’s Cove Point operation on Chesapeake Bay in Maryland; and Kinder Morgan Inc.’s Elba Island facility near Savannah, Ga. 

And as 2019 ended, Freeport LNG announced the startup of its first liquefaction train at its plant on Quintana Island near Freeport, Texas. It expects the second train to go on stream in May, with a third train to enter service later. 

With all three trains, Freeport said the plant will have a capacity of 15 mtpa. A fourth train is under consideration. Freeport LNG said its limited partnership interests are ultimately held by Michael Smith, Global Infrastructure Partners, and Osaka Gas Co., Ltd. 

Here’s a review of selected U.S. LNG export projects further along in development: 

Calcasieu Pass

Venture Global LNG announced an FID in August 2019 and the closing of project financing for its Calcasieu Pass project, as well as the associated TransCameron pipeline, in Cameron Parish, La. The project has 20-year LNG sale and purchase agreements with Royal Dutch Shell, BP Plc, Edison S.p.A, Galp Energia, Repsol S.A. and PGNiG S.A. 

Stonepeak Infrastructure Partners provided a $1.3 billion equity investment for the project. The debt and equity financing fully fund the balance of the construction and commissioning of Calcasieu Pass. Full site construction has been underway since early 2019, and the project is expected to reach commercial operations date in 2022. 

EnLink Midstream LLC has an agreement to provide gas. The midstream company expects to spend $20 million this year on the project, to be operational in 2021. 

Venture has a turnkey EPC contract with Kiewit Corp. Baker Hughes Co. was awarded a contract to provide a proprietary liquefaction train system with 18 modularized compression trains across nine blocks, for a total nameplate capacity of 10 mtpa. 

Venture Global LNG Inc. also is developing the 20 mtpa Plaquemines LNG project and the 20 mtpa Delta LNG project, both in Plaquemines Parish, La. Under the master equipment supply agreement, Baker Hughes could ultimately supply liquefaction equipment to Venture for as much as 60 mtpa LNG capacity. Equipment deliveries are expected to begin in the second half of 2020. Chart Industries Inc. is providing cold boxes and brazed aluminum heat exchangers for Calcasieu Pass. 

The modular liquefaction approach at Calcasieu Pass will be like Kinder Morgan’s Elba Island terminal and a portion of Cheniere’s Corpus Christi, Texas, complex. The modularized system is supposed to be a plug-and-play approach that enables faster installation and lower construction and operational costs. 

These modules will be manufactured, assembled, tested and transported from Baker Hughes’ fabrication facilities in Italy. 

Golden Pass 

Zachry Group and its partners, Chiyoda International Corp. and McDermott International Inc., were awarded an EPC contract in early 2019 by Golden Pass Products, a joint venture of Qatar Petroleum and ExxonMobil Corp. affiliates, to build an LNG export terminal on Sabine Pass outside Port Arthur, Texas. The complex is to have three big liquefaction trains, each with a capacity of about 5.2 mtpa. Combined output will be close to 16 mtpa. 

The facility is expected to be operational in 2024. 

Golden Pass has a 20-year firm transportation agreement with Enable Midstream Partners to supply gas. Golden Pass also has secured pipeline capacity on Kinder Morgan’s NGPL line. 

As with some other new export projects, such as Dominion’s Cove Point operation, Golden Pass is adding liquefaction capabilities to an existing import facility. Golden Pass will retain re-gas capabilities to provide the flexibility to both import and export gas in response to market conditions. 

The current Golden Pass LNG terminal facilities include five 155,000-cubic meter LNG storage tanks, two marine berths capable of offloading various-sized oceangoing LNG carriers and process facilities capable of regasifying LNG to produce approximately 2 billion cubic feet per day (Bcf/d) of natural gas. 

The new $10 billion facility will use the existing tanks, berths and pipeline infrastructure. New facilities for gas pretreatment and liquefaction will be built. 

Pipeline upgrades will include installation of approximately 3 miles of 24-in. pipeline to facilitate bi-directional flow capability and improve system hydraulics. Installation of additional compressor stations will facilitate the receipt and redelivery of up to 2.6 Bcf/d of natural gas supply to the export facility. 

Magnolia 

Australia’s Liquefied Natural Gas Ltd. received preliminary FERC approval at the end of third-quarter 2019 to increase liquefaction capacity at its proposed Magnolia LNG complex by 10%, from 8 mtpa to 8.8 mtpa. The four-train project is to be built adjacent to an existing LNG regasification terminal in the Port of Lake Charles, La. 

According to the company, the “project is construction ready with all permitting, design, contracting and equity arrangements in place to enable construction to start immediately upon finalization of LNG offtake agreements.” 

Full project equity, up to $1.5 billion, has been arranged through Stonepeak Infrastructure Partners. Limited-equity participation is being offered to offtake parties. A consortium of lenders will provide the debt at about three times equity. 

Design work is complete with the front-end engineering executed by contractor KBR, working with SK E&C USA. Ammonia and mixed-refrigerant compressors along with associated equipment for the first two trains have been pre-purchased from Siemens. The liquefaction cold boxes and brazed aluminum heat exchangers for the first two trains have been pre-purchased from Chart Industries. 

Gas will come from the existing Kinder Morgan Louisiana Pipeline. The interconnect agreement stipulates 1.4 Bcf/d for 20 years. 

The project site covers an area of 115 acres opposite the existing Trunkline LNG import terminal operated by Southern Union Co. The project will involve the construction of four 2.2­mtpa liquefaction trains, installation of two 180,000-cubic meter cryogenic tanks and construction of a berth jetty for tankers with capacity of up to 170,000 cubic meters. 

A variety of gas tolling agreements have been signed with different customers since 2013. One was with Brightshore Overseas Ltd., an affiliate of Gunvor Group, for 1.7 mtpa plus another 300,000 tonnes per annum (tpa) of interruptible capacity for 20 years, extendable by five years. Another was signed with Naturgy Energy Group S.A., formerly Gas Natural Fenosa, for up to 1.7 mtpa. A term-sheet agreement was signed with West Face Capital Group for 1.7 mtpa. Another agreement was signed with AES Corp. Group for between 800,000 tpa and 1 mtpa. 

Jacksonville Eagle 

Eagle LNG Partners announced FERC issued authorization for its proposed on-water LNG facility in Jacksonville, Fla., in second-half 2019. 

This will be the smallest of the currently planned liquefaction operations and will have more in common with a propane distribution hub than with the massive multibillion­dollar, deepsea complexes. 

The $500 million Jacksonville Eagle project is to have a capacity of 1.65 million gallons of LNG per day, or close to 1 mtpa. It will have 12 million gallons of storage plus marine- and truckloading capabilities on site. 

Eagle has not announced an in-service date more precise than “early to mid-2020s.” 

To be sure, export markets are very much intended. Most of these will be Caribbean islands, to which LNG will be shipped in intermodal tank containers. 

“Numerous independent studies have shown that sourcing LNG for power generation allows Caribbean island nations the ability to substantially reduce power costs and simultaneously reduce CO2 emissions by 30% to 40% as compared to fuel oil and coal,” said Sean Lalani, president of Eagle LNG, in a statement. 

In addition to providing U.S. gas to the Caribbean basin, once the Jacksonville facility is completed, its operations will be combined with Eagle LNG’s Maxville Facility and the Talleyrand Bunker Station for fueling LNG-powered ships. 

The new, strict limits on sulfur in marine bunkers are being imposed by the International Maritime Organization. As a result, ship owners are scrambling to retrofit their vessels to burn other fuels. Methanol, diesel and LNG are the favorites among early conversions. 

Eagle LNG is a wholly owned subsidiary of Ferus Natural Gas Fuels, a privately held portfolio company of The Energy & Minerals Group, which is the management company for a series of specialized private-equity funds. EMG invests primarily in natural resources including upstream and midstream. EMG has about $15 billion of regulatory assets under management and $11 billion in commitments allocated across the energy sector since inception.