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PEER STRATEGY

Majors Vie for Position in North American LNG Race

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  • European portfolio players enjoy a first-mover advantage with access to US LNG that is already on stream and can capture current high prices.
  • US majors arguably remain under-exposed to North American LNG relative to their large domestic gas production and broader LNG portfolios.
  • Offtake agreements have outpaced equity investments, reflecting the capital-light approach many are taking. 

The Issue

The five leading Western majors have rapidly boosted exposure to North American LNG volumes in recent months, amid a growing realization it could be one of the most sought-after commodities to have as Europe looks to ease dependence on Russian gas. While approaches to North America across the peer group vary and reflect differences in their LNG strategies, the continent is definitely on pace to become one of the largest sources of supply within their entire portfolios. But who will have the biggest share?

Doubling Up

The five majors combined currently have almost 32 million tons per year of offtake from the continent — equivalent to around 8.4% of global LNG trade in 2021 — but only the European majors are actually exporting volumes today and only from the US. TotalEnergies, in particular, enjoys an early mover advantage as the top US LNG offtaker, closely followed by Shell, with BP holding about half as much capacity.

The difference is directly attributable to the European majors' early adoption of a portfolio approach to their LNG strategy. They saw that North American LNG was produced from cheap feedstock from the US and Canada, offered flexible contract terms and allowed them to take advantage of attractive arbitrage into Europe and Asia. At the same time, their US counterparts continued to embrace a traditional business model of long-term contracts, largely with Asian buyers that did not rely as much on having broad geographic access to volumes that could be redirected to optimize trade flows.

That dynamic is changing. By 2030, export volumes held by the majors will almost double to 61 million tons per year — based on existing agreements — and all five will have some exposure. Portfolio giants Shell and Total are set to remain the leaders but Exxon Mobil and Chevron have moved quickly to address what were glaring gaps in their positions given both are moving their LNG strategies toward a more flexible portfolio approach and have large US upstream natural gas interests.

Relatively Similar Exposure

The absolute volumes of North American LNG each company has under contract vary to a great degree, but relative to their global LNG aspirations, the differences in exposure do not look as significant. By 2030, Total will see about 30% of its portfolio sourced from US Henry Hub-priced gas, compared to 31% for Exxon. Shell would see 36% of its gas linked to Henry Hub prices and 9% linked to its Canadian-priced equity volumes sold through LNG Canada.

The outlier — and one to watch for future deals — could be BP. Roughly 21% of the UK giant’s 30 million tons/yr LNG portfolio is currently sourced from North America. Chevron has not detailed aspirations for its global LNG portfolio but executives admitted earlier this year that they were underexposed to US LNG. The company has since signed four offtake agreements but — relative to its upstream position — it still may be short on liquefaction.

And speaking of the upstream, it takes about 131 million cubic feet per day of natural gas to create 1 million tons/yr of LNG, not including the gas needed to fuel the process. By that measure, Exxon’s upstream gas production could fuel almost 21 million tons/yr of LNG exports and Chevron’s almost 13 million tons/yr. But both also integrate their gas volumes with significant exposure to US petrochemicals in addition to LNG. Here again, BP’s upstream footprint, with production to support more than 9 million tons/yr of LNG and no exposure to petrochemicals would seem ripe for further offtake, particularly as the company ramps up drilling in the Haynesville and Permian Basin shales.

Total's CEO Patrick Pouyanne acknowledged the discrepancy between its in-country US production and its exports on a recent earnings call, saying the French major could be on the hunt for upstream shale gas assets. However, such value chain calculations are not always clear cut. Shell, which will become the largest US LNG offtaker by 2024, last year sold its Permian Basin shale assets. Those could have sent equity gas directly to LNG facilities along the US Gulf Coast.

More Appetite?

Further equity investments are possible but there are strategic hurdles including a general asset-light trend among the group. It’s not clear whether the US majors are comfortable joining projects executed by the new class of US LNG specialists. Exxon is notoriously finicky about who it works with and prefers to operate its major capital investments. Chevron has been burned in the past by LNG project execution in places like Australia and has told investors it will continue to keep annual spending within a very tight range of $15 billion-$17 billion, leaving little space for a large equity LNG investment. Both also have operated LNG projects further afield that require their time and money. However, there are plenty of project developers that would welcome a major with LNG experience as a partner and could offer sweetheart terms should one of them want its own project.

Additional offtake agreements could be in the cards but it seems unlikely that the feeding frenzy of the past few months will be repeated at the same scale. Access to the most bankable projects has been snapped up, though volumes remain available. The majors could up their LNG ambitions on the back of more robust medium-term demand from Europe but the outlook for the LNG market beyond 2040 remains uncertain amid an accelerating energy transition.

North American LNG Positions
BP
ProjectEquity (%)Offtake (million tons/yr)DurationCountry
Calcasieu Pass--2.02022-41US
Freeport, Train 2--4.42020-40US
Total--6.4----
Chevron
ProjectEquity (%)Offtake (million tons/yr)DurationCountry
Sabine Pass--1.02026-41US
Corpus Christi LNG--1.02027-42US
Corpus Christi, Stage IV--1.02027-42US
Plaquemines--1.02024-44US
Total--4.0----
Exxon
ProjectEquity (%)Offtake (million tons/yr)DurationCountry
Golden Pass30.05.4*2024-NAUS
Plaquemines--1.02027-NAUS
CP2--1.02028-NAUS
Rio Grande--1.02026-46US
Total--8.4----
Shell
ProjectEquity (%)Offtake (million tons/yr)DurationCountry
Calcasieu Pass--2.02022-41US
Elba Island--2.52020-40US
Sabine Pass--5.52016-36US
Sabine Pass--1.02018-37US
Driftwood LNG--3.02026-36US
Rio Grande--2.02026-46US
Plaquemines--2.02024-44US
Mexico Pacific--2.62026-46Mexico
Cove Point--1.02018-37US
LNG Canada40.05.62024-NACanada
Total--27.2----
TotalEnergies
ProjectEquity (%)Offtake (million tons/yr)DurationCountry
Cameron, Phase 116.64.02019-39US
Cameron, Phase 216.61.0NAUS
Freeport --2.22020-40US
Sabine Pass--2.02019-39US
Sabine Pass--0.82018-23US
Sabine Pass--1.92019-39US
Sabine Pass--0.72018-38US
Corpus Christi--0.42020-35US
Vista Pacifico16.61.3NAMexico
Cove Point--0.42018-23US
Costa Azul 16.61.72024-44Mexico
Total--16.4----

Topics:
Liquefaction, LNG Supply, Corporate Strategy , Majors, LNG Projects
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