July 13, 2022

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Shell Agrees to Offtake Deal With Mexico Pacific

Shell has agreed to buy 2.6 million tons per year of LNG from the first two trains of Mexico Pacific LNG, a proposed export facility to be located at Puerto Libertad, Sonora, Mexico.

The facility, to be located on Mexico's Pacific Coast, is slated to have three liquefaction trains and a combined capacity of 14.1 million tons per year. Commercial operations are expected to start in 2026. Under the agreement, Shell will purchase LNG on a free-on-board basis over a term of 20 years.

Mexico's Pacific Coast has been the site of several liquefaction plant proposals due to the region's access to both US gas supplies and Asian markets.

Importantly, Mexico’s current president, Andres Manuel Lopez Obrador, supports LNG expansion in the region.

Timeline

Mexico Pacific CEO Douglas Shanda told Energy Intelligence at the World Gas Conference at Daegu in South Korea that the company was targeting a final investment decision on Mexico Pacific's first two liquefactions trains — each of 4.7 million tons — by the middle of this year.

Shanda also said that the company was preparing to expand the facility to accommodate six liquefaction trains.

Mexico Pacific has at least one other offtake deal, signed with China's Guangzhou Gas back in April for 2 million tons — 1 million tons from each of the first two liquefaction trains.

While no pricing index was provided for the Shell deal, the earlier Guangzhou deal is understood by Energy Intelligence to be indexed against the West Texas Waha hub, instead of the more commonly used US benchmark Henry Hub, as Mexico Pacific would be sourcing US feed gas from the West Texas region.

Major Strategy

Both Shell and TotalEnergies have seen fit to turn toward additional North American LNG volumes in the light of lost Russian LNG potential and growing gas market needs in the wake of Russia's invasion of Ukraine.

Back in March, Shell signed on for 2 million tons of LNG per year from the Venture Global Plaquemines LNG project, an equivalent volume to its latter deal this month with QatarEnergy's mega-expansion.

For its part, TotalEnergies has extended its existing relationship with California-based Sempra to cover Sempra's own proposal on Mexico's Pacific Coast.

Beyond Libertad

“Their recognition of the advantages our location offers, including access to low-cost Permian gas, avoidance of the Panama Canal to ensure a shorter shipping distance to Asia, and lower landed pricing, demonstrates the value of West Coast North American LNG," said Shanda, in reference to "our anchor LNG facility."

“The demand for LNG is set to continue to rise with further LNG required to ensure security of supply and progress the energy transition,” said Steve Hill, executive vice president of Energy Marketing at Shell.

“We look forward to continuing to work with Mexico Pacific as they advance to bring more LNG online," added Steve Hill.
Michael Sultan, Washington

Delfin Signs Offtake Agreement With Vitol

The Delfin Deepwater Port project, a series of floating liquefaction vessels in the Gulf of Mexico, may finally cross the finish line to become an outlet for growing US LNG exports.

Owner Delfin Midstream has finalized a binding LNG sale and purchase agreement (SPA) with the Americas-based affiliate of Vitol, which has also agreed to an unspecified "strategic investment" in the company.

Delfin will supply 500,000 tons per year on a free on-board basis at the Delfin Deepwater Port, 40 nautical miles off the coast of Louisiana, to Vitol for a 15-year period. The SPA is indexed to the Henry Hub benchmark. The agreement is valued at approximately $3 billion in revenue.

The Delfin Deepwater Port is a modular project consisting of as many as six floating liquefaction vessels — each with a nameplate export capacity of 3.5 million tons/yr of LNG — with a total nameplate capacity of as much as 14 million tons. That total doesn't include another 7 million tons of export capacity that could be added via a related, Delfin-owned neighboring project, Avocet LNG.

The project has been around for quite some time, having filed for permission to export LNG back in 2013, and having seen various participants come and go over the years. But tight LNG markets appear to have brought the project much closer to reality, along with other modular plans for US LNG exports.

Low-Cost Modular FID

Delfin said that it has signed other heads of agreement and term sheets that "are being finalized."

As a modular project, Delfin would require only 2 to 2.5 million tons of long-term contracts to begin construction, the company said.

The company also said that it is on schedule to make a final investment decision on its first floating liquefaction vessel by the end of this year.

“Recent events have only accelerated the need for a wider array of potential buyers to source reliable low-cost energy from the safety of the US at compelling prices and Delfin is perfectly positioned to serve this growing need. After evaluating multiple projects and running an extensive diligence process, Vitol’s decision to invest demonstrates the strong trust they have in our ability to deliver a reliable source of LNG,” Dudley Poston, CEO of Delfin, said.

The project will be built as an addition to the UTOS pipeline, the largest natural gas pipeline in the Gulf of Mexico, which Delfin purchased from Enbridge all the way back in 2012.

Delfin puts its project cost per ton of LNG at less than $500, in line with the Exmar FLNG barge off Argentina and the Golar Hilli Episeyo off Cameroon, and at about half the cost per ton of Shell's Prelude FLNG.

Ducks in a Row

The Delfin Deepwater Port project is fully permitted by the US Maritime Administration and has a 13 million ton per year license from the US Department of Energy to export LNG to non free trade agreement countries.

Front-end engineering and design, which was completed in October 2020 by Samsung Heavy Industries and Black & Veatch, "puts us on pace to execute our project this year and to commence operations in 2026," said Wouter Pastoor, Delfin COO.

"Vitol’s commitment and investment grade rating will help Delfin on its path to financial close," said Pablo Galante Escobar, Global Head of LNG and European Gas & Power at Vitol.
Michael Sultan, Washington

Tellurian Buys More Haynesville Upstream Assets

LNG player Tellurian has strengthened its upstream portfolio in the Haynesville Shale after agreeing to buy natural gas assets from privately held producer Ensight IV Energy Partners for $125 million.

The move is consistent with Tellurian’s integrated project vision for its proposed 27 million ton per year Driftwood LNG export terminal, which is expected to start operations in 2026.

That vision sees the company undertaking upstream, midstream and downstream positions rather than the cost-of-service model common for other US LNG projects.

But Millions to Billions?

Tellurian gave contractor Bechtel a limited notice to proceed for the greenfield Driftwood LNG plant at the end of March, but has yet to line up financing to complete the 11 million ton per year Phase 1 of the project.

Tellurian began financing efforts for Phase 1 last August on the back of three offtake deals — with portfolio player Shell, and traders Gunvor and Vitol. Each deal is for 3 million tons per year for 10 years indexed to Asian and European gas pricing.

Following Tellurian's deals, since the start of 2022, other US LNG project developers have signed at least 31 agreements covering 42 million tons of LNG, with an average duration of 18.8 years — a duration industry observers have said is closer to that needed to finance a greenfield project.

Expanding Upstream

Ensight’s assets include current net production of around 45 million cubic feet per day across some 5,000 net acres in DeSoto, Bossier, Caddo and Webster parishes, Louisiana. Proved reserves stand at around 108 billion cubic feet.

Tellurian’s acquisition, which is expected to close in the third quarter this year, will bring the company's pro forma Haynesville position to about 20,000 acres, with more than 275 gross drilling locations and net production estimated at 140 MMcf/d.

Tellurian expects to run two rigs in 2023, with estimated net gas production next year averaging about 350 MMcf/d.

Tellurian will fund the acquisition with cash on hand.

“These assets provide Tellurian with both cash flow and a physical hedge for Driftwood LNG,” Executive Vice President of Upstream John Howie said in a statement.
Luke Johnson, Houston


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India38.6539.1338.7339.1338.2838.0939.6437.7139.5538.7537.9237.6238.03
Sodegaura, Japan39.2440.7340.7740.8539.1935.4640.3438.0140.1941.2338.3937.4739.43
Zeebrugge, Belgium51.6849.7649.3349.8651.0951.4950.6649.3150.4949.3151.2250.1251.34
Huelva, Spain42.3640.5840.1940.6741.7741.5441.4040.0741.2540.1741.8340.7241.86
Isle of Grain, UK32.0930.3730.0130.4531.5931.9231.2929.9731.0229.9831.6830.7231.79
Everett, US4.913.423.793.484.624.480.014.213.983.075.11----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback7. Feb21. Feb7. Mar21. Mar4. Apr18. Apr2. May16. May30. May13. Jun27. Jun11. Jul102030405060Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia0.0042.010.0142.01
SW Europe0.0043.052.8543.05
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.536.696.165.51
NBP, UK (futures)+3.0632.0729.0232.86
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF2.3353.8251.4951.58
Zeebrugge (Belgium)0.9938.7837.7935.60
German NCG2.8353.2150.3951.32
NBP (UK)2.8532.9430.0820.81
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.176.636.805.64
Corpus Christi, Texas-0.146.436.575.65
Cove Point, Maryland-0.056.006.055.08
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.536.696.165.51
Second Mth0.576.596.025.48
Third Mth0.576.576.005.49
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaAug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22020406080Energy Intelligence