How Soon is Now? - Financing, Tariffs, Prices Complicate the Path to FID for LNG Export Projects

In the period between Russia’s invasion of Ukraine in February 2022 and the end of last year, LNG sales and purchase agreements (SPAs) totaling 47.23 million tons per annum (MMtpa; 6.3 Bcf/d) were signed between buyers and nine U.S. LNG projects under development. Of those, the projects that will ultimately secure a critical mass of reputable offtakers and achieve a final investment decision (FID) must also secure permitting and financing. Two project FIDs were taken in 2022: Cheniere’s Corpus Christi Stage III in Texas and Venture Global’s Plaquemines Phase 1 in Louisiana. Although two more FIDs have recently been announced — Plaquemines Phase 2 and Sempra’s Port Arthur Phase 1 — there can be a timing disconnect between the commitments LNG buyers are prepared to make and the ability of project sponsors to deliver on their plans. In today’s RBN blog, we focus on the increasingly important role of financing in the implementation of U.S. LNG projects and the challenges that project developers and sponsors face.

The momentum for North American LNG right now is incredible. With Europe’s efforts to wean itself off Russian natural gas supplies boosting long-term LNG demand in the continent and Asian demand expected to grow even further, there has been a strong push for new LNG projects in the U.S., Mexico and Canada, with enough commercial support and capital present to advance at least some of them to construction and operation. Venture Global on May 25 reached a final investment decision on Phase 1 of Plaquemines LNG, the first North American project to take FID since Energía Costa Azul LNG in 2020. But it’s unlikely to be the last. Cheniere’s Corpus Christi Stage III is likely to follow in the coming months and support is coalescing around a handful of other projects too. So far this year, more than 20 MMtpa of long-term, binding commitments tied to new North American LNG capacity have been signed, propelling a new wave of LNG projects towards FID. In today’s RBN blog, we take a look at the trends in the recent commercial commitments.

On the surface, it may seem that the LNG market has normalized after the past year’s tumult, and it’s true that many of the day-to-day disruptions that plagued LNG offtakers and operators have subsided. Mass cargo cancellations are a distant memory, and U.S. LNG exports have been flowing at record levels. Global demand has recovered, and buyers are back to worrying more about what they normally worry about: storage refill and securing enough supply for the next winter. However, in other ways, the pandemic and the more decisive shift toward decarbonization measures in many ways have fundamentally changed how deals for future LNG development will get done. Today, we look at what the global initiative to reduce greenhouse gas emissions will mean for LNG project financing.