Global gas prices surge, breaking logjam of new LNG projects

HOUSTON - High global natural gas prices are breaking a two-year logjam of new U.S. liquefied natural gas LNG projects with at least three of the multibillion-dollar proposals likely achieving enough supply contracts to start construction this year, said developers and industry experts. A Louisiana project that received a green light in 2019 was the last wholly new U.S. plant to receive a go-ahead, benefiting from demand from China and utilities swapping to LNG from coal. A dozen others were stalled, first by the China-U. S. trade war and then the COVID-19 pandemic and environmental concerns. We apologize, but this video hasn't loaded.

You can see other videos from our team by tapping here. The growing demand for fuel has pushed global gas prices to near record highs, reviving financing prospects for plants that chill natural gas into liquid for transport by seaborne tankers. A key benchmark price for natural gas deliveries in northern Europe has more than tripled from a year ago, to around $30 per million British thermal units per day mmBtu Europe s declining gas production and increased dependence on Russia for its supplies has driven global LNG prices higher and attention to the need for new LNG plants in the United States and Asia.

In mid-2019 China stopped taking most U.S. LNG by imposing a 25% tariff on imports, at the height of a U.S.-China trade war. Such contracts are key to winning funding for these $4 billion to $8.5 billion projects, and breaking the development logjam, said Carlos Sole, an attorney at Baker Botts, an attorney who has been involved in the development and financing of multiple U.S. LNG export projects. Last year, Sole said that capital was not willing to deploy itself on a speculative basis without long-term contracts. Given current market conditions, capital should be available, assuming that are achieved. Craig Pirrong, a finance professor at the University of Houston, said that the proposals that are likely to get financial approval include Venture Global and Tellurian Inc plants in Louisiana and a Cheniere Energy Inc project in Corpus Christi, Texas. The banks are realizing that this is an existential issue, said Tellurian Executive Chairman Charif Souki, referring to the lack of energy investments. He said that the construction on the first phase of Tellurian's Driftwood project, which would export about 11 million tons of LNG per annum MTPA, or about 1.5 billion cubic feet per day of natural gas, could start this summer if financial hurdles are cleared.

The three new projects would increase U.S. export capacity by about a third at the end of the decade. The U.S. Energy Information Administration estimates that plants already under construction will lift peak U.S. capacity to 13.9 bcfd by the end of the year, surpassing Qatar and Australia, now the two largest LNG exporters. This is the best macro environment the LNG business has ever seen, said Delfin LNG Chief Executive Dudley Poston in an interview, saying that he was very confident that Delfin's project off the Louisiana coast would be approved for construction this year. Despite repeated setbacks, optimism has never been in short supply among project developers. Financial go-aheads for projects such as Tellurian s Driftwood, NextDecade Corp s Rio Grande and Sempra Energy s Port Arthur LNG plants were promised and delayed last year, in some cases for a second time.

Tessa Davis, a partner at law firm Morrison Foerster LLP who has been involved in financing LNG projects in Indonesia and Qatar, said investors are wary of investing in new projects in which the expected revenue stream is supported by inexperienced or untested buyers. Davis said that the shift to inexperienced and less-creditworthy offtakers will increase the uncertainty that financiers may have regarding the risk profile of new LNG projects. Roald Nashi, who represents investors in energy and infrastructure projects at Kirkland Ellis, said that a cold northern hemisphere winter will be good for encouraging long-term contracts needed to finance plants. Nashi said that the long-term contracts should be available as last year.