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https://pemedianetwork.com/petroleum-economist/articles/gas-lng/2022/delfin-eyes-emerging-us-export-strategy/

Delfin eyes emerging US export strategy
The company expects more US gas producers to target international markets as it signs a deal with Devon Energy and nears FID on its FLNG project
Delfin Midstream is nearing FID on the US’ first floating LNG (FLNG) export facility after signing deals over the summer with trading house Vitol, UK gas supplier Centrica and, most recently, US independent oil and gas producer Devon Energy.

The “export partnership” with Devon includes a heads of agreement covering tolling deals for up to 2mn t/yr of liquefaction capacity and a pre-FID strategic investment by Devon in Delfin, as well as scope for additional equity investments in the future.

The Delfin Deepwater facility, which is located 40 nautical miles off the coast of Louisiana and will ultimately comprise four FLNG vessels, is scheduled to become operational in 2026.

Petroleum Economist spoke to Delfin COO Wouter Pastoor during the Gastech conference in Milan in September to find out more.

What is the current timeline for FID on the project?

Pastoor: We are working towards FID on the first two vessels by the end of the year. We have 2.5mn t/yr committed on the first vessel—total nameplate capacity of the first two vessels is 7mn t/yr—but we do not have to sell out full nameplate capacity to make FID. We are confident that we will contract sufficient volume to support an FID on two FLNG vessels.

We are the only [US] floating project that has completed all permitting work and received both a positive Record of Decision and a non-free trade agreement export licence for 13mn t/yr.

How will the current supply chain issues and cost inflation impact the project?

Pastoor: We think US onshore projects might have more of an issue than Delfin, since they target the same labour pool and a very limited set of contractors ­capable of building onshore plants.

We think there will be issues and supply chain constraints in the Gulf of Mexico and, therefore, we believe that Delfin has an advantage since we are building our FLNG vessels at shipyards in Asia.

“European end-users need more LNG, but we have not really seen European buyers coming to the market yet”
How significant is the deal with Devon?

Pastoor: The agreement with Devon is an important example that demonstrates the interest and commitment from US producers. We will see more US producers taking firm steps to sell part of their gas to international gas markets, including Europe.

We believe US producers are committed to supporting the energy transition with clean-burning gas and to providing secure and reliable energy supply from the US. Moreover, a significant scale increase of production is feasible in the US and the US producers are key to unlocking this potential.

Tell us about your approach to working with US producers in this new market environment

Pastoor: Given the market developments, everybody understands LNG exporters are fully focused on the buyers to secure offtake contracts. At Delfin, we certainly are doing that, but we have had two additional areas of focus.

First of all, US producers are expanding and looking for growth and differentiation, and the large price spreads between the Henry Hub and the TTF and JKM price benchmarks support their international outlook. So, we are doing a lot of work towards developing deals and partnerships with US producers.

Secondly, market developments have triggered a new investor appetite to support and participate in LNG export projects. Therefore, we have been focusing on structured investments with innovative tweaks to align investor interests with current market outlooks.

What is your perspective on Europe’s demand for LNG to help replace Russian gas?

Pastoor: Obviously, we have seen Europeans focusing on the imminent short-term problems, like establishing LNG import terminals and securing cargoes basically now. But the focus is gradually shifting to secure long-term LNG supplies, with the prime supplier being the US. European end-users need more LNG, but we have not really seen European buyers coming to the market yet.

What about other markets, such as Asia?

Pastoor: While a lot of focus is on Europe, the growing demand for cleaner and affordable energy is still there in Asia with new LNG-to-power projects and coal replacements ongoing. That outlook has not really changed. We are in negotiation on LNG SPAs with a number of Asian counterparties.

People often do not realise the relative size of the LNG industry being still small compared to oil or coal—if 1pc of oil switches to LNG, that represents an 11pc increase in LNG. This means that fuel-switching has a significant impact on the LNG demand outlook. And again, this scale of supply increase can materialise in the US. So we are in a good spot, with the right partners and a favourable business model.