Contracting of US LNG slows as buyers doubt projects will reach FID

Monday, 03 October 2022
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Buyers’ quest for US LNG has slowed down markedly from a highpoint in July, when 14 formal and tentative offtake agreements were sealed, as rampant inflation and rising interest rates are changing the market sentiment. These days, many buyers are no longer willing to sign contracts if a liquefaction project cannot reach a financial investment decision (FID) in the next three months, Poten & Partners observed.

Without clear signs that a project developer can secure financing, buyers see “no point” in signing offtake agreements as these will be out of date before FID is taken. Staying cautious, some LNG buyers are even asking for tentative offtake agreements into 2023 that could be formalised if and when steel prices are falling.

Just two large projects were sanctioned in the United States this year: Venture Global took FID for its Plaquemines LNG project in Louisiana, followed by Cheniere Energy’s FID for a third expansion of Corpus Christi with up to seven midscale trains.

Jump in interest rates derail some projects

Inflation and the risk of a global recession made interest rates rise markedly since August, preventing some projects from reaching financial close. Earlier this year, US LNG developers secured some $19 billion in financing – one of the strongest years for project funding since 2019, according to Poten data.

Melanie Lovatt, the ship brokerage’s financial adviser anticipates margins for exporters, and in turn prices for customers, will rise as banks are trying to brace for a chaotic future. The timeline of some LNG expansions may well slip as financing becomes harder to get and more expensive, while equity investors are dragging their feet.

Most new volumes already sold

As tensions heat up over a global supply crunch, buyers have already snatched up most volumes from approved US LNG project – well ahead of time. Some crafty developers are even overselling capacity on the notion that future expansions plans will take fruition.

Buyers in Europe, and especially Germany, are still scrambling for long-term LNG commit- ments to be shipped from the United States. Utility buyers and government agencies typically want to firm up most of their supply well in advance and are hence on the hunt for volumes – often with limited success.

Over in the UK, the government reportedly met with US LNG producers already back in March to discuss potential long-term supply arrangements. Centrica then sealed an $8.4 billion heads of agreement to purchase 1 mtpa of LNG on a Free-on-Board basis from at the Delfin Deepwater Port, located 40 nautical miles off the coast of Louisiana. “As a modular project that can make FID in 3.5 mtpa increments, this agreement materially advances our first vessel’s path towards FID later this year," Delfin’s CEO Dudley Poston said, with operations slated to start in 2026. 

 

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