US E&Ps Make Case for Exposure to Global LNG Market

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US gas producers, seeking greater exposure to international markets, have recently pushed into the LNG export sector. But their strategy is more about diversification than an overhaul of the E&P business model, executives said this week.

“We're not going to be big LNG players like Cheniere or Freeport or anything like that,” Devon Energy CEO Rick Muncrief said at the NAPE conference in Houston on Wednesday. “I mean, from our perspective, it's how can we get some exposure in international markets and help our allies around the world. We do the same thing with oil.”

Last year, Devon inked an initial agreement with floating LNG (FLNG) specialist Delfin Midstream to help develop an offshore liquefaction facility off Louisiana. The deal includes a pre-sanction investment by Devon and a heads of agreement to finalize a 1 million ton per year (0.142 billion cubic feet per day) tolling agreement for capacity in Delfin’s first FLNG project. Muncrief said Wednesday that the project would take about 10% of Devon’s gas production volumes.

US independents have been increasingly interested in exposure to the global LNG market after Russia’s invasion of Ukraine pushed commodity prices higher and made North American supply more attractive to foreign buyers. For instance, ConocoPhillips has partnered with Sempra to develop the Port Arthur LNG project in Louisiana, while Chesapeake Energy has inked a deal to supply the Golden Pass LNG project with “responsibly sourced” gas.

'Most of Our Investors Get It'

But Chesapeake CEO Nick Dell’Osso said the company’s LNG strategy was not about short-term gains. “Most of our investors get it and they think it's a good idea,” he said at the conference. “At the end of the day, the way I describe it to our investors, is this is not arbitrage capture. This is diversification of market. The US gas is being sold in international markets. We should have exposure to that. That's diversification of your product sales points and ultimately like any other portfolio diversification.”

Chesapeake has also committed 700 million cubic feet per day of its Haynesville Shale gas production to Momentum Midstream’s NG3 gathering system, which will ferry gas from Haynesville fields to third-party interconnections near Gillis, La. — including several pipelines that directly supply LNG export facilities along Louisiana's Gulf Coast.

The project will have an initial capacity of 1.7 Bcf/d, expandable to 2.2 Bcf/d, and includes carbon capture and sequestration that will remove and store underground 100% of the project's CO2 emissions.

Asked whether customers would pay a premium for carbon-neutral LNG, Dell’Osso said the market was still evolving. “I'm just not sure that the market has evolved enough" for customers to pay a premium for US responsibly sourced gas, he said.

However, the emissions reduction efforts do play an important role in getting producers a seat at the bargaining table, he added.

The move toward market diversification is common among large upstream gas players. Last fall, in third-quarter earnings calls with analysts, other major gas producers laid out the prospects for breaking into the LNG export arena.

Southwestern Energy CEO William Way said 65% of its 4.2 Bcf/d equivalent of Appalachian and Haynesville production already makes its way to Gulf Coast markets and the company is working to earmark more of its production for international destinations.

And Antero Resources stressed that the 2.3 Bcf/d of firm transportation along pipelines serving the Cove Point LNG export terminal in Maryland and the Gulf Coast LNG "fairway” enabled the company to achieve a 49¢ per million Btu premium to Nymex Henry Hub futures prices in the quarter — a premium likely to get even more attractive "as additional LNG trains and terminals are completed."

Liquefaction, Corporate Strategy , Capital Spending, Independent E&Ps, Floating LNG, LNG Projects
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