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Wednesday, April 08, 2015 10:49:58 AM
By Rhiannon Meyers, Houston Chronicle April 7, 2015
Energy companies continue to roll out plans for new liquefied natural gas export plants despite growing skepticism that the multibillion-dollar projects will attract enough investment to move forward.
After the U.S. shale boom unlocked a flood of natural gas over the past decade, companies jumped at the opportunity to buy up the cheap commodity, supercool it to a liquid at 260 degrees below zero and ship the liquefied gas overseas to hungry Asian markets where it commanded higher prices.
But the collapse of global oil prices also is making natural gas cheaper in overseas markets, tamping down their demand for fuel from the U.S. and making new export projects less attractive than they were a year ago.
“People can propose to do all kinds of things. Whether they actually get anywhere, that’s the real question,” said Michelle Foss, chief energy economist for the Bureau of Economic Geology at the University of Texas Center for Energy Economics. “I think there’s a disconnect between what’s going on in the world today and what people are announcing.”
Companies have proposed dozens of export terminals, promising to employ thousands of construction workers and plant operators and pump cash into local economies. But with low oil prices, Foss and other analysts say it’s unlikely that many will ever get built.
“The market is not going to be able to absorb all these projects,” said Alex Munton, principal analyst of North American LNG at energy consulting firm Wood Mackenzie. “There are simply too many, the market conditions are too difficult, and everything is on pause at the moment.”
Construction has started at a few export terminal projects that were first in line for federal approval, including Cheniere Energy’s $18 billion Sabine Pass LNG facility in Louisiana and Sempra Energy’s $6 billion Cameron LNG plant in Hackberry, Louisiana.
The first phase of the Cheniere project is nearing completion, edging the development closer to becoming the first large-scale plant in decades to ship LNG from the continental U.S. The first two production units, called trains, are expected to become operational by the summer.
Sempra started construction on Cameron LNG last fall and expects to begin operations by 2018. Construction is in early stages at Freeport LNG’s plant in Brazoria County and the Dominion Cove Point plant in Lusby, Maryland.
But companies with plants still on the drawing board will have a harder time convincing investors their projects can compete against the companies that already have snapped up lucrative contracts with LNG buyers.
Projects that have achieved full investment and started construction promise to put 2.5 trillion cubic feet per year of liquefied natural gas into global markets, according to a study by the Oxford Institute for Energy Studies.
And the study found that the total output could grow to 12 trillion cubic feet if all the projects proposed but not yet started come online — a prospect many analysts consider unlikely.
That’s three times the total amount sent to Japan, the world’s largest LNG importer, in 2013.
If domestic prices rise when the plants under construction begin shipping natural gas out of the U.S. , however, the potential profit for additional export plants will drop, and the projects will be canceled, said Zach Allen, president at PanEurAsian Enterprises, which analyzes global LNG markets.
“If prices don’t go up and the market seems to be a bottomless pit, more will get built,” Allen said. “But I don’t think the market is a bottomless pit.”
Analysts’ skepticism hasn’t dissuaded hopeful natural gas exporters from pursuing new megaprojects. Two companies last month said they’ve asked federal regulators for approval to build liquefaction export plants in Texas port cities.
“As long as there is a belief among buyers that international prices are going to rise, that will make U.S. LNG continue to seem attractive,” Wood Mackenzie’s Munton said.
Sempra Energy wants to build a terminal and export facility on the same site in Port Arthur that it purchased years ago with plans to import LNG, warm it back to its gaseous state and pipe it out to U.S. consumers when domestic gas was scarce and the prices were higher.
NextDecade, based in The Woodlands, has asked to build an export terminal in Brownsville.
Applying for federal permission is a necessary first step for these projects, but construction will hinge on whether Sempra and NextDecade are able to secure financing and sign commercial agreements with buyers to purchase the gas.
Citing confidentiality agreements, NextDecade CEO Kathleen Eisbrenner declined to say how much money has been committed to the project. The first phase would include two liquefaction trains at a projected cost of $8 billion.
Sempra did not disclose a price tag because the plan is in the early stages of engineering, spokeswoman Paty Mitchell said.
These projects, in particular, face an uphill battle because they’ve been slated for construction on virgin land, making them more expensive than the proposals that call for transforming the existing import terminals into export plants, Allen said.
Unless the projects have long-term commitments from buyers willing to pay fees for gas transportation or to buy equity stakes in the plants, he said, “I just don’t see those working out.”
The recently announced smaller developments appear to be trying to fill an untapped niche, optimistic that they can capture a sliver of the market not already dominated by the large-scale terminals, Munton said.
Eisbrenner said that NextDecade sees an opportunity to capitalize on rising global demand that’s happening at the same time that decades-old contracts to purchase LNG from established operators are coming to an end, a trend that will send international buyers prowling for cheaper bargains.
“I view ourselves as hopefully leading the second wave of LNG projects,” she said.
rhiannon.meyers@chron.com
twitter.com/ChronRhiannon
http://www.expressnews.com/business/eagle-ford-energy/article/Prices-could-hang-up-LNG-projects-6185166.php#photo-7782100
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