The second wave of North American LNG export projects is officially underway. LNG Canada took final investment decision (FID) last October and would be the first large-scale LNG export facility in Canada. Golden Pass and Calcasieu Pass followed in February, marking the beginning of the next round of LNG export build on the U.S. Gulf Coast. Sabine Pass Train 6 is expected to get the green light any day, and at least eight more projects are targeting FID this year. But how likely are these projects to go ahead? And what exactly does it take for a project to reach that financial milestone? Today, we begin a two-part blog series on the factors affecting U.S. and Canadian LNG export projects’ prospects for taking FID and our view on the projects making progress towards joining the second wave of LNG exports.
One of the ripple effects of the Shale Revolution has been the rush to export LNG. Seven U.S. liquefaction trains across three terminals — two at brownfield sites and one at a greenfield site — are now operational (green diamonds in Figure 1), and more than a dozen others are “FID-ed” and on their way toward completion (blue and orange diamonds). But those are just the ones that have garnered the capital backing and commitment to get built. In addition, there are nearly two dozen more liquefaction projects lined up to, well, catch the export wave (see our Coming Up series). But as surfers know, multiple factors have to align in order to find that perfect swell; the same goes for LNG export projects, and not all of the announced projects will make it. So, what makes a liquefaction project truly viable in a highly competitive environment?
Well, there’s not just one way to get there — different projects take different approaches to development and the dependencies and investment criteria for greenlighting a project may vary, but there are some common milestones that underlie developers’ decisions to commit to building these multibillion-dollar projects. Understanding these criteria can help us evaluate a project’s prospects — an exercise we regularly undertake in our LNG Voyager Quarterly report, where we track all of the announced North American LNG export projects and assess the status and timing of a potential FID. (We’ll explain our “tier system” and our view on which projects are more likely to proceed later on.) Developers are generally moving the ball forward on two or three main fronts in the period leading up to a project’s FID: regulatory approvals, commercial agreements with offtakers for liquefaction train capacity and — in cases where the developer is responsible for securing feedgas — lining up gas supply and related pipeline capacity to the liquefaction site. Next, we provide a high-level summary of the typical milestones and the factors affecting progress on each.