The race is on to be the first to reach a Final Investment Decision (FID) for the next round of U.S. liquefaction/LNG export terminals along the Gulf Coast. And like the Kentucky Derby, being first — or, at worst, second or third — is a do-or-die proposition, because only a very small number of these projects are likely to line up the multibillion-dollar commitments needed to push them over the FID line. The tried-and-true approach of LNG project financing has been to secure a stack of long-term Sales and Purchase Agreements (SPAs) from international LNG trading companies or huge overseas utilities, and that’s the tack being taken by Venture Global LNG, which is developing two projects near the Louisiana coast that, if built, would consume a total of nearly 4 Bcf/d of U.S. natural gas. Today, we continue our series on the next round of liquefaction/LNG export terminals “coming up” with a look at Venture Global’s Calcasieu Pass and Plaquemines projects.
This is the third episode. In Part 1, we reviewed the dramatic shift in U.S. expectations regarding LNG a few years back. Through the 1990s and the first two-thirds of the 2000s, U.S. natural gas production was close to flat, so the general thinking was that U.S. gas output had peaked, and that over time, increasing amounts of LNG would need to be imported to keep pace with gas demand. In 2005, the Energy Information Administration (EIA) estimated that the U.S. would be importing the LNG equivalent of nearly 12 Bcf/d by 2015 and 18 Bcf/d by 2025, and a number of LNG import terminals were built to handle the expected inflow. It became clear by 2010-11, however, that the Shale Revolution — and the resulting boom in U.S. gas production — had eliminated the need for LNG imports. In a flash, many of the companies that had just finished building LNG import terminals started exploring the possibility of adding liquefaction plants at those sites to export LNG instead. Since then, six liquefaction/LNG export projects advanced to FID and construction — Cheniere Energy’s Sabine Pass and Corpus Christi, Dominion’s Cove Point, Cameron LNG, Freeport LNG and Elba Liquefaction — and five liquefaction trains (four at Sabine Pass in southwestern Louisiana and one Cove Point in Maryland) with a combined capacity of more than 23 million tonnes per annum (MMtpa) are up and running. (We track the status of LNG projects with FIDs in RBN’s new LNG Voyager Report — click here for more information.)
In Part 2, we did a deep dive on Tellurian’s Driftwood LNG, a 27.6-MMtpa liquefaction/LNG export terminal planned for an 800-acre site in Louisiana’s Calcasieu Parish, south of Lake Charles (aqua diamond in Figure 1). Several aspects of Tellurian’s project bear repeating here. One is that, in contrast to the large-scale liquefaction trains now operating at Sabine Pass and Cove Point and under construction along the Gulf Coast (generally with capacities of 4 MMtpa or more each), Driftwood LNG will consist of as many as 20 much smaller, modular-based trains (1.38 MMtpa each). Also, Tellurian is acquiring natural gas reserves that will be tapped to produce gas for the LNG project, and it is developing two 2-Bcf/d long-haul pipelines (Permian Global Access Pipeline, or PGAP, and Haynesville Global Access Pipeline, or HGAP) — and a 96-mile, 4-Bcf/d connector called Driftwood Pipeline — to deliver most of the natural gas that the Driftwood trains will demand. Most important, perhaps (and most relevant to today’s discussion of the Venture Global LNG projects), is that to help finance its project Tellurian is seeking a handful of customer/partners that would take a combined 60% to 75% equity interest in Driftwood Holdings, which consists of Tellurian Production Co. (a gas producer), Driftwood Pipeline Network (the pipelines discussed above) and Driftwood LNG Terminal (the liquefaction trains and export docks). Those stakes — at an estimated cost of about $1.5 billion per MMtpa of liquefaction capacity — would give the customer/partners equity LNG at the tailgate of the liquefaction trains at cost, with the variable and operating costs estimated to be about $3.00/MMBtu FOB (free on board — that is, with the LNG owner responsible for shipping the LNG to its destination). Tellurian will retain the remaining 25% to 40% equity interest in Driftwood Holdings, and will market its share of LNG production on its own. It also will manage and operate the pipelines, liquefaction trains and export docks.