US LNG exporters plan projects to capitalise on European shortages

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American natural gas exporters are planning a new wave of projects to capitalise on supply shortages in Europe and soaring global prices — even as the Biden administration says the goal remains to “transition away” from the fossil fuel.

It marks a potentially dramatic reversal for the US liquefied natural gas export industry, which only last year was idling capacity amid a pandemic-induced supply glut and battling doubts about gas’s future in a low-carbon world.

“Yes, it’s a good thing for American LNG,” Charif Souki, chair of Tellurian LNG — which is hoping to construct a new $15bn export plant on the US Gulf coast — told the Financial Times, referring to the global price spike. “It is going to depend only on whether the infrastructure can be built in the US or not.”

Analysts say that as developers regain confidence in LNG’s future, new construction will soon make the US the world’s second-largest exporter of the super-chilled fuel, after Australia.

“Even before the pandemic . . . it looked like we might have seen the last of North American LNG FIDs,” said Amber McCullagh, a director at energy consultancy Enverus, referring to final investment decisions to build more export plants.

It’s making sure that the next few years the supply is reliable and affordable, while at the same time accelerating the transition away

Now McCullagh expects as many as five new projects, including expansions to existing facilities, to be greenlighted in the next two to three years. US LNG export capacity could double if they all come online to about 20bn cubic feet a day, compared with roughly 10bn cf/d in the first half of this year.

But the new capacity will not arrive soon enough to plug Europe’s supply gap and avert potential shortages this winter, a situation state department energy envoy Amos Hochstein recently said was putting “lives at stake”.

The US government, which has long touted rising American LNG exports for its geostrategic benefits as an alternative to energy supplies from Russia, supports rising supplies into Europe for the next couple of years — at least until a shift to cleaner fuels gathers pace.

“We have to have an eye on next winter and the winter after that, in order to make sure that, while we focus on the energy transition, we are addressing the needs of today,” Hochstein, who previously also worked for Tellurian, told the FT.

The current crisis “demonstrates the concern that we have had for so many years around the supply into Europe”, Hochstein said, arguing that Russia was not doing all that it could to alleviate the market blowout.

Line chart of US LNG exports, billion cubic feet per day showing US gas export boom

But he said the overriding goal for the Biden administration remained slashing natural gas demand as it pushes to decarbonise the energy system.

“It’s making sure that the next few years the supply is reliable and affordable, while at the same time accelerating the transition away,” Hochstein added. “That is a complex balancing act,” he said.

Whatever transition in energy demand takes place in the longer term, LNG developers say the fear of shortages now underscored the need for more American gas on global markets.

Matt Schatzman, the chief executive of NextDecade, which hopes to sanction a new export megaproject in Texas this year, said “market conditions in Europe and around the world confirm that the call on LNG far exceeds available supply” without new projects. NextDecade says it will capture and bury much of the carbon emissions from its plant.

Mike Sabel, head of Venture Global, another developer, echoed the sentiment, saying US LNG will be “critical to meeting this growing need and bringing energy security to Europe and beyond”. Venture Global, which recently signed a major supply deal to deliver gas to Poland, is building one plant in Louisiana and hopes to approve a second one this year.

Analysts remain cautious, however, saying that despite today’s global shortages, financiers and buyers must still be willing to bet that demand for LNG — which requires huge upfront capital investment — can hold up over the longer term in a world seeking to burn less fossil fuel.

“Never before has US LNG looked this good . . . but it’s not that simple when you get into the detail” said Alex Munton, an analyst at energy consultancy Wood Mackenzie.

“Society and policy is trying to point them away from putting a 20-year gas contract on their books. They’ve got to sell it to investors who are basically saying: ‘what are you doing? You should be getting into wind’.”

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