Closing midstream deals has been a bit of a challenge in 2020, to say the least. In fact, this has been a year when many projects have been sidelined or cancelled outright, with most decisions on even the best prospects getting pushed to next year. But it hasn’t been all bad news. In a few cases, assets with advantages have made it across the finish line, even in the land of liquefied natural gas (LNG) export projects. Despite this summer’s collapse in U.S. LNG exports, driven by a compression of the spreads in global gas prices, Sempra Energy recently announced that it is going ahead with Phase 1 at its Costa Azul liquefaction project in Mexico’s Baja California. How did they pull this off in such a tumultuous year? Well, Costa Azul isn’t your everyday LNG export project. Today, we detail the most recent U.S. LNG export project to receive a final investment decision (FID) to proceed.
It's been a nutty year for U.S. LNG exports. 2020 started as expected, with the final phases of various liquefaction/export projects entering the home stretch and January exports totaling 74 cargoes. That was a record back then, as we detailed in March’s Steady As She Goes? blog. However, when we wrote that blog things were already starting to get weird and we all know what has happened since then. With demand shellacked in just about every market around the world, prices for natural gas plummeted in most global markets. Prices also converged and wiped out most of the spread required to export LNG, a situation we outlined in our Break It To Me Gently series. If there was one upside to the plunge in exports, the incredibly tight margins in the LNG market gave us, and likely other market participants, an urgency to wrap our minds around all the costs that are under consideration when exporting a cargo. The culmination of that effort was the foundation of our Sultans of Swing series, which ran in two parts during the third quarter and detailed just about every variable cost we could find in the LNG value chain. However, around the same time we got comfortable with LNG export economics, the global gas markets firmed up on various supply outages and improved demand. The bullish fundamentals sent U.S. LNG exports soaring to new highs and November saw a new export record from U.S. terminals, with 79 LNG carriers leaving our shores. For more on those recent developments, as well as the state of global LNG markets, see our weekly LNG Voyager Report.
Amidst all that craziness, news on the LNG export terminal FID front got very quiet. There was a point in time this year when it looked like a new U.S. export facility might not happen again anytime soon. Alas, that all changed a few weeks ago when Sempra announced to the market that its Costa Azul Phase I export project had reached FID and would begin development. Phase I will be built and operated by Sempra LNG and IEnova, Sempra’s Mexico subsidiary. The $2 billion project is expected to be complete in late 2024 and will have a nameplate capacity of 3.25 million tons per annum (Mtpa), or about 450 MMcf/d. The project is backed by 20-year sale and purchase agreements (SPAs) with Mitsui & Co. for approximately 0.8 Mtpa (~110 MMcf/d) and Total for about 1.7 Mtpa (~240 MMcf/d).
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