U.S. Liquefaction Projects Advance

Earlier this month, after receiving a siting approval from the U.S. Federal Regulatory Commission (FERC) and a conditional export approval from the U.S. Department of Energy (DOE), project sponsors of the Cameron liquefied natural gas (LNG) export project in Louisiana moved a step closer to construction by reaching a final investment decision (FID). Currently, there are three projects, with a total capacity of 6.2 billion cubic feet per day (Bcf/d), that have received FERC approvals and some level of DOE approvals—Sabine Pass LNG in Louisiana, Freeport LNG in Texas, and Cameron LNG—with two of these projects (Sabine Pass and Cameron) having reached FID, while Freeport's FID is expected later this year.

In order to export LNG, projects need an export approval from the DOE, and for onshore facilities, a siting approval from FERC. As of July 31, more than 30 projects totaling 40 Bcf/d in export capacity have been proposed for the Lower 48 states. In comparison, global liquefaction capacity was 39 Bcf/d in 2013, with 18 Bcf/d of additional capacity under construction, according to data from IHS Energy. Global LNG trade amounted to 32 Bcf/d. In addition to the 3 U.S. projects already approved by FERC, 14 other projects, with the total proposed export capacity of 17 Bcf/d, have been proposed at FERC, as of August 15. Four of these projects—Lake Charles, Cove Point, Jordan Cove, and Oregon LNG, with an export capacity totaling 4 Bcf/d—were conditionally approved by the DOE for exports to countries with which the United States does not have a Free Trade Agreement (FTA). Currently, the United States has an FTA covering natural gas with six LNG importing countries, which accounted for 22% of the global LNG imports in 2013.

Most of the liquefaction projects in advanced stages of permitting are being sited at current LNG import terminals. These regasification facilities have been underused, largely due to growth in domestic shale gas production. Although there are some cost savings because of the availability of existing gas infrastructure, including storage tanks, pipeline connections, and jetties at these terminals, the equipment needed to liquefy natural gas is a very expensive part of the supply chain and the cost of these brownfield projects has been estimated in the range of $2 to $12 billion, depending on the size of liquefaction units, known as trains. The majority of the proposed liquefaction projects are located along the Gulf of Mexico coast, which has highly developed pipeline and storage networks and access to domestic natural gas resources.

Today, nearly two-thirds of the proposed liquefaction projects that filed FERC application (including the three approved projects) have been fully or partially contracted. Half of the contracted volumes have flexible destinations, while the rest of the volumes are contracted to energy companies in Japan, India, Europe, and to other countries in the Pacific Basin.

Currently, only Cheniere Energy's Sabine Pass facility is under construction, with an anticipated start date in late 2015.

 

Overview:

(For the Week Ending Wednesday, August 20, 2014)

Natural gas prices at most trading locations ended the report week relatively flat. The Henry Hub spot price decreased by 2 cents per million British thermal units (MMBtu), falling from $3.87/MMBtu last Wednesday to $3.85/MMBtu yesterday.

At the New York Mercantile Exchange (Nymex), the September 2014 contract decreased by $0.008, opening the report week at $3.831/MMBtu last Wednesday and settling yesterday at $3.823/MMBtu, a 0.2% decrease. The 12-month strip (the 12 contracts between September 2014 and August 2015) also decreased, falling from $3.913/MMBtu last Wednesday to $3.909/MMBtu yesterday, a 0.1% decrease.

Working natural gas in storage rose to 2,555 Bcf as of Friday, August 15, according to the U.S. Energy Information Administration (EIA) Weekly Natural Gas Storage Report (WNGSR). A net increase in storage of 88 Bcf/d for the week resulted in storage levels 16.4% below year-ago levels and 17.3% below the five-year average for this week.

Active drilling rigs totaled 1,913 as of August 15, an increase of 5 rigs compared with the previous week, according to data from Baker Hughes Inc. The natural gas rig count increased by 5 rigs this week, totaling 321 rigs, and the number of oil-directed rigs increased by 1 to 1,589. Natural gas rigs are 67 units less than last year's level, and oil rigs are 192 units greater than last year's level.

After a six-week trend of falling prices, the Mont Belvieu natural gas plant liquids composite price increased for the week of August 11 through August 15, averaging $9.40/MMBtu, a 2 cent increase over the previous week. The spot prices of propane, butane, and isobutane increased by 1.0%, 2.6%, and 2.6%, respectively. The spot prices of natural gasoline and ethane decreased by 0.5% and 4.8%, respectively.