A massive 100 mtpa of LNG projects have secured financing in North America and are under construction but prices are creeping higher. According to Poten & Partners, tolling fees around $2/MMBtu to cover costs of liquefaction are no longer on the table – for the most recent FID, banks wanted to see prices closer to $2.50 – which developers managed to agree with their customers.
Pressured by the banks for more favourable offtake deals, some developers went back to their customers and tried to get those higher prices – and they were successful. “In the most recent deals, we hear that liquefaction fees are hovering around $2.40 and are creeping towards $2.50 for a 20-year deal. If a customer signs a 50-year deal, he actually has to pay a premium that some say is 25 cents or even 35 cents higher than the price you would get for a 20-year deal,” Poten & Partner’s senior LNG analyst Americas, Sergio Chapa told a webinar.
Poten shipbrokers heard that some developers are actively trying to market US LNG for about $2.60 to $2.80 liquefaction fee “and we see some customers buying even at that prices,” he pointed out. This is largely because contracts linked to Henry Hub prices are still relatively cheap, compared to Brent-linked contracts.
Many Chinese buyers, however, feel their exposure to US volumes is “quite enough,” as they get offers in the mid-$2 for liquefaction fees, Poten’s senior LNG analysts Asia-Pacific, Irwin Yeo commented. European buyers, in contrast, are likely to accept higher prices although they want shorter contract duration.
Uniper Global Commodities head of LNG origination, Peter Abdo had indicated earlier there might probably not be much LNG buying beyond 2045, though the utility entered contracts to transact LNG into the 2030s. “Spot to 5 of 7 years out, we are very active,” he noted, beyond that uncertainty abounds as Europe shifts to cleaner fuels like hydrogen.
Next wave of US LNG onstream by 2026
A big build-out is underway in North America right now: In the United States, Canada and Mexico analysts at Poten are tracking about a dozen projects with a combined capacity of roughly 100 mtpa that are actively under construction and have secured financing. “That is 100 million tons of LNG coming on the market over the next four years,” Chapa underlined but cautioned that very little of that volume is coming online this year.
“We only have one project by an American company, New Fortress Energy who are planning to place an offshore LNG project into service in Mexico – Altamira Tamaulipas – that is just 1.4 mtpa,” he said, suggesting: “We could see a cargo out – Mexico’s first LNG export cargo – by the end of this year. However, the project does not have its non-FTA permit so it is limited in options as to where they can send it.”
Beyond the 12 projects under construction, there are 19 projects in the US and Canada and Mexico that are permitted but have yet to secure financing. “That’s 162 mtpa and out of those, we are count about a dozen that are within striking distance of reaching FID. So that’s 50 mtpa of LNG that could enter the market in the coming years,” Chapa said.
Bridging volumes offered at a premium
Three substantial FIDs already took place in the United States in 2023 so far, all of them “junky projects,” Poten’s global head of business intelligence Jason Feer said, with reference to the 17.6 mtpa Rio Grande LNG at Brownsville, Sempra’s 13.5 mtpa Port Arthur LNG and Venture Global’s 6.7 mtpa Plaquemines LNG venture. The first one to come to market will be Global Pass that will come on by the end of next year.
Bridging volumes – designed to ensure ample supply until the next wave of US LNG enters the market – are on offer, albeit at a premium: “Venture Global is offering ‘bridging volumes’ for buyers wanting to secure offtake earlier than when their Plaquemines project is coming onstream,” Feer disclosed, stressing the 100 mtpa of North American LNG export capacity under construction will herald about a 25 percent expansion of the physical supply on global markets, currently pegged at 478 mtpa. First additional supply to enter the market will be from Global Pass LNG that is slated to come onstream by the end of 2024.
But what discourages the Europeans from signing what they consider as ‘onerous contracts’ is that there is just a lot of volume that are offered a longer tenure and higher price than they are comfortable with. So, until the bulk of additional US supply is coming onstream in 2026, prices at Europe’s most liquid gas hub – the Dutch TTF – are becoming incredibly volatile and overreactive. This was noticeable with the latest Australia strikes situation and the prolonged maintenance of Norwegian gas fields.
“Looking at the short term, there is a two year window where a lot of traditional LNG trading houses that are short on volume are happy to rely on the spot market due to the expectation that TTF prices will take a bearish turn through 2026 as more supply comes to Europe,” Poten’s senior LNG
analyst Europe Piers de Wilde said. Once US LNG expansions will actually come through, there will be even more short-term contracts that are cheaper value. “This notion creates a ‘wait-and-see approach’ although developers would need a 20-year offtake commitment to get their project off the ground to cover inflation and rising liquefaction costs,” he warned.
Moreover, portfolio sellers are no longer willing to offer US LNG volumes at a discount to TTF. Typical deals before Russia’s warn on Ukraine used to be 89 percent of TTF prices minus 10 cents. “Now, if the aggregators put 15-year supplies into Europe they want higher prices and that’s just a formula for the Europeans to lose money when they sell that gas on,” Poten’s global LNG head Feer said, concluding: “You don’t see much common ground there.”
