Houston Chronicle

U.S. liquefied natural gas developers are pushing forward with plans to build new export terminals along the Gulf Coast despite a global supply glut and record low prices in Asia.

U.S. LNG developers push forward despite record low prices in Asia- oil and gas 360

Source: Houston Chronicle

Over the past year, the U.S. LNG industry has brought four new plants online — raising the number of U.S. export terminals to six with a combined production capacity of nearly 70 million metric tons per year. One new export terminal with another 16 million tons of capacity is under construction near Port Arthur while 10 more proposed plants capable of making an additional 130 million tons have received permits but still need contracts and financing before they can be built.

However, that planned U.S. expansion faces some hurdles on the global market. Natural gas traded on Asia’s JKM price index fell below $3 per million British thermal units earlier this week, hitting lows not seen in more than 10 years time, the global commodity data trading firm S&P Global Platts reported.  The record low prices are attributed to a global supply glut created by a warm winter and weak demand in China, the largest LNG buyer in the world, where the ongoing coronavirus outbreak has cut demand from industrial customers.

It remains to be seen how the global supply glut and the coronavirus outbreak play out or if they will affect the ability of U.S. LNG developers to land new contracts and secure financing. But during a Thursday morning panel discussion at the S&P Global Platts LNG Summit in Houston, executives with four proposed export terminals said they stand behind their projects.

Vivek Chandra, CEO of Houston-based Texas LNG, said his company’s proposed export terminal at the Port of Brownsville will succeed because of its smaller size and production capacity. Its two potential production units each will make 2 million tons of LNG, meaning that the company has less to sell than its larger competitors.

“We could have gone the way most other second wave projects did and add another 30 million tons to the world but we didn’t,” Chandra said. “The industry has gone crazy announcing bigger and bigger projects. The ‘if you build it, they will come’ syndrome is going to be one of the downfalls of the industry.”

U.S. LNG developers are counting on global demand growing to 500 million tons by 2030 from 380 million tons today — with the greatest growth in China, which is converting more power plants to natural gas from coal. But U.S. producers are looking elsewhere for potential new customers after China slapped a 25 percent tariff on American LNG amid last year’s trade war.

LNG Limited, based in Australia with offices in Houston, and its proposed Magnolia LNG plant landed a supply deal with Vietnam. Houston-based  Tellurian and its proposed Driftwood LNG export terminal reached a supply deal with India.

“When I look at the market today, I see us in a period of demand creation,” said Renee Pirrong, head of research for Tellurian.

Current prices, however, are undercutting the efforts to boost demand in Asia. Prices there must be closer to $6 for U.S. producers to break even on feedstock, liquefaction and transportation costs, S&P Global Platts Head of LNG Pricing Ciaran Roe said.

With prices not expected to be stronger until next year and long-term contracts for several Asian customers set to expire over the next few years, Roe said it will continue to be a buyers market.

Under those conditions, U.S. LNG producers may have to find new customers in places such as Europe, where transportation costs are lower and demand is growing.

“Anyone who needs long-term buyers will need to look at growth markets,” Roe said.



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