Where It's At - More Gulf Coast LNG Export Capacity Is on Its Way. Where Will the Feedgas Come From?

The first wave of Gulf Coast liquefaction and LNG export facilities was well-timed, coming as it did with fast-rising natural gas supplies in the Lower 48 and a slew of pipeline reversals and expansions that enabled billions of cubic feet a day of low-cost Marcellus-Utica gas supplies to reach Gulf Coast markets. Permian and Haynesville supplies helped too. The next wave of LNG development, which will kick off in earnest in 2024, may not go quite as smoothly, however. Global demand for LNG is there — there’s little doubt about that. But the next phase of export capacity growth may well be hemmed in by domestic factors, namely the timing and availability of gas supplies to the Gulf Coast due to potentially serious midstream constraints. In today’s RBN blog, we look at where the feedgas supply is likely to come from and what that will mean for pricing dynamics.

As we’ve discussed recently in our Jump in the Line series, the momentum behind new U.S. LNG export projects is the strongest in years. With fossil-fuel-related projects increasingly deprioritized, the global LNG market looked to many like it was headed toward oversupply conditions prior to the COVID pandemic, and the demand destruction that followed the pandemic-related lockdowns reinforced that perspective. Once the pandemic’s effects eased and demand bounced back in late 2020, European offtakers were still wary of long-term capacity deals, particularly as they looked to comply with climate-change policy, and U.S. LNG projects lost favor. However, that outlook was shortsighted as energy demand continued to rise and Europe lacked a backup plan should anything go awry — in late 2021, gas storage there hadn’t been filled and renewable-energy capacity, while growing, was still unable to fill the supply void. Then, this year, Russia’s invasion of Ukraine threatened energy reliability, most immediately in Europe but by proxy also in Asia, bringing investors and European offtakers back to U.S. shores.

After a lengthy dry spell, long-term LNG offtake deals made an unmistakable comeback this year. In the months after the war broke out, offtakers committed to no less than 31 MMtpa of U.S. LNG supply, with term lengths ranging from 15 to 25 years. (You can see the latest on these deals and their associated export projects in our LNG Voyager Quarterly report released November 10.) With the deals rolling in, two large-scale projects reached final investment decisions (FID): Venture Global’s Plaquemines LNG Phase 1 for an initial 13.3 MMtpa of capacity and Cheniere Energy’s Corpus Christi Stage 3, which will add 10 MMtpa at its existing export facility. Moreover, there’s another 100 MMtpa (14.3 Bcf/d) or so of proposed LNG export capacity that we estimate have a medium-to-high chance of progressing in the next three years, including at least three projects totaling almost 19 MMtpa (2.5 Bcf/d) that we believe are highly likely to take FID within the next 12 months. That’s out of a universe of nearly 30 projects we track in the LNG Voyager Quarterly, representing over 280 MMtpa (38.3 Bcf/d) of potential export capacity, the bulk of it along the Texas and Louisiana coasts.