More LNG export terminals are a step closer to being built in Texas after receiving approval from the Federal Energy Regulatory Commission (FERC). The regulator announced on Nov. 21 that it had granted permits to three proposed projects at the Port of Brownsville in the Rio Grande Valley—Texas LNG, Rio Grande LNG and Annova LNG. It also approved a new expansion phase at Cheniere Energy’s Corpus Christi LNG facility, which entered service earlier this year.
“The commission has now completed its work on applications for 11 LNG export projects in the past nine months, helping the United States expand the availability of natural gas for our global allies who need access to an efficient, affordable and environmentally friendly fuel for power generation,” FERC’s chairman, Neil Chatterjee, said in a statement. Another four projects are still under review by FERC.
The four projects approved by FERC still need to secure other approvals, including authorizations from the Department of Energy (DoE) to export LNG to countries with which the U.S. does not have free trade agreements (FTAs). Cheniere, Texas LNG and Rio Grande LNG’s developer, NextDecade Corp., are targeting a final investment decision (FID) on their respective projects in 2020. Annova LNG’s CEO, Omar Khayum, meanwhile, warned in September that his company would need to sign offtake agreements for two-thirds of the proposed facility’s capacity before it could proceed to the FID stage. The company had not yet contracted out any of its capacity at the time that Khayum’s comments were reported, and it may prove more difficult for Annova to do so in an increasingly oversupplied market.
Indeed, concerns over global market oversupply and a looming slowdown in demand growth could increase the risk that at least some of the projects will be scrapped.
“The possibility of a capacity overbuild in this investment cycle is definitely a growing concern for the industry,” Akos Losz, a senior research associate at the Center on Global Energy Policy at Columbia University told Hart Energy. “We have seen a record amount of new capacity sanctioned this year, and we could have another record year next year. There is clearly no shortage of advanced-stage LNG projects looking to take FID in the near future, and some projects that are backed by major portfolio players with large balance sheets can go ahead without securing long-term offtake agreements with buyers in advance,” he said. “Meanwhile, the demand outlook is deeply uncertain. LNG demand in China is slowing and it is not at all guaranteed that the rapid pace of growth that we saw in the past two years can continue in the longer term.”
If the four projects that FERC approved are all built, they will add up to a combined 48.45 million tonnes per year (mtpa) of LNG export capacity at a time when U.S. gas exports are already booming. The proposals all vary in size. Rio Grande LNG is the largest, with a planned capacity of 27 mtpa. Annova LNG and Texas LNG are mid-sized projects, with capacity of 6 mtpa and 4 mtpa respectively. The Stage 3 expansion of Corpus Christi LNG will add roughly 11.45 mtpa of LNG capacity at the facility, through the construction of seven mid-scale trains. The expansion marks a shift in design from the initial stages of the Corpus Christi plant, where two 4.5 mtpa trains have been completed and a third of the same capacity is under construction, and due to enter service in 2021.
“The four projects recently approved by the FERC are not all created equal,” Losz said. “Cheniere is already an established player with lots of credibility, marketing prowess, and a strong balance sheet of their own, so they can more easily sanction an expansion project, even just to test out some of the new business models around feed gas sourcing and modular construction with Corpus Christi Stage 3. The others are greenfield projects and face a more challenging pathway to commercialization in this new market environment.”
Indeed, it is increasingly difficult for some developers to underpin their facilities with long-term offtake agreements as buyers pursue greater flexibility. In addition, the ongoing trade dispute between the U.S. and China continues to limit the access of LNG U.S. exporters to a major market that will continue to grow – albeit more moderately if demand slows as expected.
Similarly to Annova LNG, Texas LNG does not yet have any firm offtakers lined up, though it has signed some memorandums of understanding (MoUs) with prospective buyers. NextDecade, meanwhile, recently signed a 20-year sales and purchase agreement (SPA) with Royal Dutch Shell for the supply of 2 mtpa with full destination flexibility. “NextDecade’s Rio Grande project is a vast greenfield scheme, and had some momentum earlier this year,” Losz said. “But it is a challenging proposition in a crowded marketplace and its main rival, Tellurian’s Driftwood LNG, appears further ahead in commercialization. There is probably not going to be room for both projects in the current investment cycle.”
Losz added that Annova LNG appears to be the furthest from reaching FID at this point, which is backed up by Khayum’s comments in September. “I think the window could soon be closing for second wave projects to go forward in this cycle, especially once the Qatar expansion project, the second Mozambique project, and perhaps some of the more advanced-stage projects in the US and elsewhere announce an FID next year,” Losz said.
Continental Resources recently completed a “follow up” deal in the Powder River Basin, CEO Bill Berry said in an exclusive interview.
The midstream affiliate of Hess agreed to acquire the Tioga Gathering System in the Bakken where the oil and gas producer plans to grow production by 20% this year.
Here’s a quicklist of oil and gas assets on the market including over 1 million acres of federal and state leases and a Juno Energy’s position in the heart of Midland Basin’s Eastern Shelf.