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Jump in the Line, Part 3 - With Construction Beginning, Is Tellurian's Driftwood LNG a Done Deal?

Russia’s invasion of Ukraine has pushed U.S. LNG into the spotlight as Europe seeks to wean itself off Russian natural gas. In the short term, U.S. LNG to Europe is constrained by liquefaction capacity on the LNG output side but also by Europe’s own import capacity and pipeline grid. Very little can be done to quickly increase global LNG production, and while many export terminals will operate at peak capacity for longer to boost output, LNG terminals take time to build, so capacity for this year and the next few years is already set. Further out, however, there is no shortage of new projects hoping to capitalize on the current clamor for LNG and reach a final investment decision (FID), and the U.S. could be headed toward its biggest year for new LNG capacity ever. In today’s RBN blog, we continue our series examining key U.S. projects, turning our lens to what is arguably the most discussed and reported-on project on our list — and one that is moving forward potentially without a formal FID — Tellurian’s Driftwood LNG.

Demand for U.S. LNG has never been higher. The global gas market has been tight for 18 months or more, leading to a huge run-up in international gas prices from historic lows of around $2/MMBtu in the summer of 2020 to record-smashing highs the past few months. Benchmark European gas prices averaged more than $30/MMBtu this past winter, or more than $10/MMBtu above the previous single-day record settlement. The highest price spikes have been caused by tensions between Europe and Russia in the months leading up to and during the invasion of Ukraine. Russia’s aggression has forced the world to reconsider its trade relations with that country and led Europe to try to wean itself off Russian natural gas, which currently accounts for as much as 40% of Europe’s gas supply. Europe’s reliance on Russian gas won’t evaporate overnight, but the European Commission (EC) is working on reducing its usage now and in the long term (see You Don’t Own Me), something the U.S. can help with. The U.S. has said in recent days that it will work with international partners to provide an additional 15 billion cubic meters (BCM; about 530 Bcf) of LNG to Europe this year. Although the plan does not specifically say where this LNG would come from, the U.S. would most likely be able to produce and send all of that. (See Baby I Got It and Help is on the Way for more on how much LNG the U.S. could send to Europe this year.)

Beyond the short term, however, it certainly seems like the sky’s the limit. U.S. gas producer EQT Resources in February laid out a plan to help reduce global emissions by unleashing the power of U.S. LNG. Its plan calls for quadrupling U.S. LNG export capacity to more than 55 Bcf/d by 2030 (from the current 10.6 Bcf/d), effectively pushing coal fired-generation out of the money abroad, similar to what the U.S. experienced domestically to some degree after the Shale Revolution. While scaling up LNG production to that level would require some significant regulatory changes in the U.S., there are projects that are ready to go now. In Part 1 of this series, we looked at Venture Global’s Plaquemines LNG. At the time we published that blog it seemed that Venture Global was ready to take FID any day on the first half of the 20-MMtpa (million metric tons per annum; 2.65 Bcf/d) project. Although the FID has still not happened, Venture Global has announced two new long-term offtake agreements for the project and now 14 Mtpa (1.85 Bcf/d) of the terminal’s capacity has been secured in 20-year sales purchase agreements (SPAs). Venture Global will likely take FID on the entire 20-MMtpa (2.65 Bcf/d) project all at once — and soon. When it happens — we’re confident it’s a question of when, not if — it will be the largest amount of new LNG capacity in North America to ever reach FID at once. In Part 2, we looked at Cheniere’s Corpus Christi Stage III, another 10 MMtpa (1.32 Bcf/d) of capacity that will almost certainly get a green light this year. Both projects are being developed by companies with portfolios of other projects and are underpinned, at least in part, by long-term, traditional SPAs.

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