(Adds comments from Cheniere)
By Scott DiSavino and Sabina Zawadzki
NEW YORK/LONDON, Oct 17 (Reuters) - A gap is emerging in the
U.S. liquefied natural gas (LNG) industry as big players such as
Exxon Mobil Corp and Cheniere Energy Inc race
ahead to build export terminals with fewer long-term contracts,
while smaller developers struggle to find financing for their
first plants.
LNG trade has traditionally been underpinned by long-term
purchasing deals which finance multi-billion dollar terminals
that liquefy natural gas by chilling it to -260 degrees
Fahrenheit (-160 Celsius), load it onto ships, and regasify it
when delivered.
This is changing. As the market grows and pricing mechanisms
diversify, some buyers do not want to commit to 20-year
contracts. The growing prowess of oil majors such as Exxon and
recent entrants such as Cheniere and trading houses means there
are aggregators that can supply buyers more flexibly, making it
harder for smaller players.
"The industry is moving away from long-term agreements to
justify construction of a new facility to a true commodity
business," said Charif Souki, co-founder and Chairman of
Tellurian Inc.
Dozens of LNG export terminals are being planned in the
United States with a total capacity exceeding 300 million tonnes
per annum (mtpa). That is equal to the world's entire
consumption of LNG last year. Globally, LNG demand is expected
to rise 26% by 2024, far short of such an increase in export
capacity, analysts said.
"I'm not going to pick a winner or loser here, but I don't
think there is enough support for all of these projects by any
means," said Rich Redash, head of global gas planning, at S&P
Global Platts Analytics.
Tellurian has been seeking investors for its 27-mtpa
Driftwood export terminal in Louisiana. Instead of trying to
line up long-term purchase agreements, it offers customers the
opportunity to invest in the company's gas production, pipelines
and liquefaction.
The company has delayed the start of construction to early
next year from a previous target of the first half of this year,
according to company presentations. It also reduced how much its
partners need to invest in the project to receive LNG to $500
per tonne from a previous target of $1,500 per tonne.
By contrast, Exxon and Qatar Petroleum decided this year to
move ahead with their 15-mtpa Golden Pass project in Texas
without substantial long-term agreements, while Cheniere said it
would add a sixth liquefaction train at its Sabine Pass terminal
in Louisiana with fewer long-term contracts than in the past.
"In our early days, a train had to be 80%-85% contracted to
reach FID (Final Investment Decision). Increasingly, that number
is going lower," said Cheniere spokesman Eben Burnham-Snyder,
noting that Sabine 6 was about 40% contracted when the company
made a FID. He said the company still sees long-term contracts
as essential to its continued growth.
DELAYS
Buyers have been wary of committing to long-term deals due
to the influx of flexible supply and the recent decline in
prices, removing the urgency they felt last year to sign deals.
"It's hard to sign long-term deals when prices are so low,"
Vivek Chandra, CEO of Texas LNG, told Reuters. "I think to sign
deals on long term basis is counterproductive now."
Texas LNG already delayed its FID from 2019 to 2020, but
Chandra said that decision may slip further.
"We think our FID will be the end of next year, but we’ll
see, we’re not under pressure, which is good," he told Reuters.
U.S. developers had been banking on signing deals with
buyers in China, which will account for more than 40% of global
gas consumption growth between 2018-2024, becoming the top LNG
buyer by 2024.
The 15-month U.S.-China trade war has choked off overall
demand from that country, once the third biggest buyer of U.S.
LNG. For the first eight months of 2019, the United States
exported just 14% of the volumes it sent to China for the same
period in 2018, according to U.S. Department of Energy data.
"It is still a very difficult market. The trade war with
China has put a damper on deals in China," said Greg Vesey, CEO
of soon-to-be U.S.-listed LNG Ltd, which is planning
the 8.8-mtpa Magnolia project in Louisiana.
Magnolia had hoped to reach a FID last year but delayed that
citing the trade war. It has about 25% of its capacity under
long-term contract. Vesey said there is potential LNG Ltd could
make a FID this year but next year would be more likely.
Other delays include two Louisiana projects: Delfin LNG's
floating plant and Energy Transfer LP's Lake Charles LNG,
both asked federal regulators for more time to complete.
Large projects from other countries are also vying for
market share, including Russia's Arctic LNG 2 and two projects
in Mozambique being shepherded, respectively, by Total SA
and Exxon.
(Reporting by Scott DiSavino in New York, Sabina Zawadzki and
Ekaterina Kravtsova in London and Jennifer Hiller in Houston;
Editing by David Gregorio and Bernadette Baum)
BP (BP.)
