Burst of US LNG Activity Spotlights Ukraine War's Impact

A burst of activity in the North American LNG sector this week illustrates just how much the war in Ukraine has reversed the fortunes of second-wave export projects.

The long-awaited Rio Grande LNG project on the Texas Gulf Coast is set to reach a final investment decision (FID) later this month, having secured enough financing and offtake agreements to green-light the 27 million ton per year (3.6 billion cubic feet per day) project's first phase, developer NextDecade said.

Rio Grande was once seen as a long shot: It suffered from a lack of commercial interest early on, and reports that France’s Engie exited a contract under pressure from the government in 2020 exposed buyers’ concerns about Rio Grande LNG’s carbon footprint. As a result, NextDecade pushed back the timing of its FID schedule several times.

The developer later redesigned the project, slimming it down to five trains total instead of six while retaining the original 27 million ton/yr capacity. It also rolled out plans for carbon sequestration to help the facility reach net-zero emissions.

But it wasn’t until Russia invaded Ukraine early last year, causing international buyers to scramble for non-Russian gas supplies, that it began steadily racking up commercial agreements. The company has now sold 16.2 million tons/yr (roughly 2 Bcf/d) of LNG from the first phase, which is around 92% of the nameplate capacity.

If it progresses, Rio Grande would bring total US LNG export volumes sanctioned this year to 43.6 million tons/yr (5.8 Bcf/d), more than half of the 70 million ton/yr Energy Intelligence has projected.

More Green Lights

Additional FIDs could be on the way this year as well. Developer Mexico Pacific, whose proposed Saguaro LNG plant would re-export Permian Basin gas from the West Coast, had signed up another customer, moving it closer to the finish line.

The sales and purchase agreement with gas distributor Zhejiang Energy announced this week brings Mexico Pacific’s total contracted volumes to 9.7 million tons/yr, according to Energy Intelligence estimates. That is enough to cover the initial phase of two 4.7 million ton/yr trains.

Mexico Pacific plans to take FID on the first phase this year with the second phase, a one-train expansion, “to follow closely,” Chief Commercial Officer Sarah Bairstow told Energy Intelligence.

Meanwhile, Energy Intelligence expects Sempra’s Cameron LNG expansion and the first phase of the Delfin floating LNG project to move forward in the second half of this year. Developers that have also teased the possibility of taking FID this year, include Commonwealth LNG, Venture Global’s CP2 LNG and Freeport LNG’s one-train expansion.

Third Wave Woes

Market conditions are looking a bit trickier for the next wave of LNG entrants. Still-rising costs in the US could inhibit commercial activity and block future FIDs, analysts agree, while some buyers are looking elsewhere for supply to avoid over-reliance on US volumes.

But one new entrant sees a bright future for US gas. Gulfstream LNG, led by former Texas LNG CEO Vivek Chandra, is banking on a dearth of supply — and rocketing demand — in the middle of this decade with its proposed facility in Plaquemines Parish, Louisiana.

“While the number of US LNG export projects that have been permitted but have not begun construction is sizeable, many of these projects will not ultimately reach FID or be able to sanction their full permitted volumes,” according to the Gulfstream website. “There are comparatively few new and expansion projects entering the permitting process. As a result, there will be limited new US supply options in the future. The long-term supply deficit will result in global LNG prices remaining at elevated levels.”

This week, Gulfstream received federal authorization to export LNG to countries with which the US has a free trade agreement (FTA). The approval, albeit a small step toward FID, is considered important for attracting customers for the long-term agreements that finance the facility’s construction. In its application submitted in March, Gulfstream said it expected to enter long-term agreements following Department of Energy (DOE) authorization.

The DOE order grants Gulfstream’s request to export up to 237.5 Bcf/yr of domestically produced LNG, effective from the start of commercial operation to the end of December 2050.

While the FTA authorization allows Gulfstream to ship LNG to key markets including South Korea, Singapore and parts of Latin America, it leaves out other big demand centers such as Japan and China. Those will be covered in a separate permit for non-FTA countries, which Gulfstream expects to get once its Federal Energy Regulatory Commission application to build the project has progressed.