LNG firm Cheniere Energy plans expansion in the US
One of Australia’s biggest potential rivals in the global LNG trade, Houston-based Cheniere Energy, has given the green light for up to seven more gas processing trains on the US Gulf Coast that could lift its annual export capacity to 60 million tonnes by 2025.
Cheniere has already committed to five trains at its Sabine Pass liquefaction project in Louisiana and three at Corpus Christi in Texas. The proposed new trains would expand Corpus Christi and would add two new mid-size projects in Louisiana.
Cheniere is less than six months away from producing its first LNG for export from the 4.5mtpa Train 1 at Sabine Pass, which will mark the first US export of LNG outside Alaska. That gas will go to BG Group under a 20-year long-term supply agreement.
During 2016-17, Cheniere will add another 13.5mtpa of capacity as trains two, three and four come on stream at Sabine Pass. Two more trains are planned for the site, with train five now expected to begin operating in 2018 after the Cheniere board approved a favourable final investment decision for it on June 30, while train six is waiting in the wings.
According to Cheniere chairman and chief executive Charif Souki, all regulatory approvals are in place for train 6, and a final investment decision will be made once commercial contracts and financing are arranged.
Gas Natural Fenosa of Spain, Korea Gas, GAIL India, Total Gas & Power and British energy utility Centrica will take most of the output from trains two to five, with about 2mtpa left over for spot sales.
In a presentation this month, Cheniere says its break-even price range for its Gulf Coast LNG delivered ex-ship to Asia is between $US7.70 ($10.44) and $US8.40 per million metric British thermal units (MMBtu). In comparison, it estimates the break-even price for LNG from West Africa is $US9.50 to $US11.50, and $US14 to $US16 for northwest Australia.
The July spot price for LNG delivered to Asia is $US7.60, according to data from commodity information company Platts.
In its July 10 report, Oil & Gas Reality Check 2015, the Deloitte Centre for Energy Solutions said LNG was now very much a buyer’s market. It said high project development costs would, for example, “hamper Australian attempts to cost-effectively supply global consumers”.
It said this was “especially true in the current low-price environment”.
Qatar is the world’s cheapest gas producer and is currently the world’s biggest LNG seaborne exporter, with 77 million tonnes of annual capacity, ahead of Australia, Malaysia and Indonesia. Australia is expected to overtake Qatar by 2018 as new projects and expansions begin producing on the North West Shelf, the Northern Territory and in Queensland, where three coal seam gas-based LNG plants have been built on Gladstone’s Curtis Island.
BG Group’s Queensland Curtis LNG has already begun exports from its two trains, and the Santos Gladstone LNG and Origin-ConocoPhillips Australia Pacific LNG projects are expected to begin exports over the next few months.
If the three Gladstone LNG plants, the Darwin-based Ichthys development in 2017, and the Gorgon (late 2015), Wheatstone (2016) and Prelude (2017) projects on the North West Shelf all come to fruition on schedule, Australia will have about 85mtpa of export capacity in 2018.
All suppliers are targeting the Asian LNG market, where demand is expected to reach 270 million tonnes a year in 2020 and 314 million tonnes in 2025, according to the latest estimates from energy analyst Wood Mackenzie. The biggest customer for seaborne LNG is Japan, with annual imports of about 80 million tonnes, followed by South Korea and China. India is also growing in importance as a customer.
But price is an issue, with recent lower demand in China putting pressure on suppliers that include not just Qatar and Australia, but Papua New Guinea — where the ExxonMobil-Oil Search venture began shipments last year from its 6.6mtpa Port Moresby facility — and Russia, Africa and Southeast Asia.
Complicating the picture is the imminent arrival of new supply from North America, where a combination of pipeline networks, finance, skilled labour and technological advances mean companies like Cheniere, Louisiana-based rival Cameron LNG from 2017 and Texas-based Freeport LNG from 2018, can liquefy abundant and cheap shale gas and ship it to Asia competitively.
Cheniere, a relatively small producer with a market cap of about $US16 billion, claims in its presentation that it “can profitably sell LNG into key demand centres even in periods of lower market prices” and that “if LNG prices remain at lower levels, we would expect LNG demand to increase, thus signalling the need for more liquefaction projects.” In addition to its six-train 27mtpa Sabine Pass project, Cheniere has started work on the first two trains of its similar Corpus Christi project, where it hopes to begin exports in 2018. Its customers there are Pertamina of Indonesia, European utilities Endesa, Iberdrola, Gas Natural Fenosa, EDF and EDP, and Singapore-based Woodside Energy Trading.
In a statement last month announcing an expansion of Corpus Christi, Mr Souki said the site eventually would have 22.5mtpa of capacity from five trains. He said work on the final three trains could begin in 2017, with production in 2021.
In addition to Sabine Pass and Corpus Christi, Cheniere last month struck an in-principle partnership with Houston-based Parallax Enterprises covering four new trains of 2.5mtpa each, for a total of 10mtpa over two sites on the Gulf Coast. One is known as Live Oak LNG in southwestern Louisiana and the other is Louisiana LNG, on the Mississippi River 60km from New Orleans.
Mr Souki said the two extra trains at Corpus Christi and the proposed four-train partnership with Parallax would “bring our expected aggregate nominal LNG production capacity to about 60 mtpa by 2025”.
Mr Souki said Cheniere expected that the new liquefaction trains could be funded from internal cash flows.