When the Going Gets Tough, Part 2 - The Halting Progress of U.S. LNG Export Projects

There’s a tough race underway among U.S. LNG developers jockeying for position in the global LNG market. U.S. supply growth has spurred the development of more than two dozen LNG export projects, the bulk of them along the Texas/Louisiana Gulf Coast. But regulatory bottlenecks and deepening oversupply conditions in international markets are creating strong headwinds and slowing the momentum for some of these massive projects, making it harder and harder for them to reach the regulatory and commercial milestones they need to pass before they can progress to the construction phase. That said, several projects have eked out big wins in recent weeks, including Tellurian’s $7.5 billion memorandum of understanding with India’s Petronet LNG Ltd for its Driftwood LNG project, signed just this past weekend, and LNG Ltd.’s 2-MMtpa sales and purchase agreement for its Magnolia LNG, inked early last week. Today, we provide highlights of recent regulatory and commercial developments that are pacing the proposed export capacity additions.

In Part 1, we focused on the status of the under-construction projects that are testing and commissioning liquefaction trains. Between weather, construction and regulatory logistics, these projects have had a rough go of it. With the slower pace of capacity additions, demand growth from LNG exports has been less than expected. When we looked at the project timelines at the beginning of 2019 (see Let Me Move You, Part 4), it looked like LNG feedgas demand would exceed 9 Bcf/d by the end of the year. But with several of those trains originally expected to come online in 2019 now pushed into 2020, exports may be hard-pressed to reach much past 7 Bcf/d by December 2019.

Next, we shift our focus to the status of the second-wave projects, which have faced challenges of their own this year — these are the ones awaiting federal approvals and/or final investment decisions (FIDs). These highly complex, multibillion-dollar export terminals have to jump through multiple regulatory hoops before they can be greenlighted, first by the Department of Energy (DOE) for export to free-trade-agreement (FTA) and non-FTA countries, then by the Federal Energy Regulatory Commission (FERC) for construction following an environmental impact assessment. The timelines for these are fraught with uncertainty. Additionally, in order to reach FIDs on these projects, developers must lock in commercial agreements, such as SPAs and project financing.

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