Imports to exports: US set to lead world in LNG sales

Sometime next year, when Venture Global’s Calcasieu Pass terminal in Louisiana ramps up toward full production and Cheniere Energy starts commercial operations through the latest addition to its nearby Sabine Pass terminal, the United States will become the world leader in liquefied natural gas production capacity.

More than Qatar, which held the title for more than a dozen years.

More than Australia, which dethroned Qatar a couple of years ago after a $200 billion investment bonanza that lasted about a decade.

And almost 20 years sooner than ExxonMobil had predicted in 2016, when it said that North America would become the world’s top LNG exporter, but not until 2040.

The LNG coronation is a long way from 15 years ago — before the start of the shale gas boom saved the U.S. from a natural gas deficit — when analysts, government officials and the oil and gas industry expected the country to become a world leader in LNG imports, not exports.

Marketed U.S. gas production shot up 80% from an average 53 billion cubic feet, or bcf, per day in 2006 to about 96 bcf per day in November and is headed to a record year in 2021, according to federal data. Of that, more than 11 bcf per day in November was piped to liquefaction terminals for export — enough to fill three standard-size LNG carriers for overseas customers.

The transformation from the impending title of Import Nation to Export Leader was a costly lesson in how quickly, and dramatically, commodity markets can shift — although it looks to eventually be a profitable lesson for many developers that poured billions of dollars into building new terminals to import LNG, or expanding and reopening mostly unused LNG import facilities from the 1970s.

The leader in reversing direction from imports to exports has been Houston-based Cheniere Energy, which now operates two liquefaction and export plants in Louisiana and Texas with a total annual output capacity expected next year of 45 million tonnes, which is almost 10% of worldwide capacity.

But it wasn’t until the company had sunk almost $2 billion into building its import facility in Sabine Pass, Louisiana, that it saw the market start to turn at about the same time the plant went online in 2008.

Though Cheniere could see that investing in exports was the only way to salvage a failed investment in imports, it was not an easy sell to lenders, or to analysts.

“It is more likely to see snow in New York in July than to see exports of gas from LNG terminals in the United States,” Fadel Gheit, senior energy analyst at New York-based Oppenheimer & Co., was quoted in The New York Times in January 2011.

A few months later, Cheniere received export approval from the U.S. Energy Department. It took a couple more months, but Charif Souki, then CEO at Cheniere, sent Gheit a pair of snow boots.

Lenders were just as skeptical of exports, at first. They told Cheniere, which was close to defaulting on its debt for the import terminal, “show us some money, and then we’ll consider making a loan.”

A key element of putting together financing for Cheniere’s export project at Sabine Pass was that the developer did not ask lenders to take any commodity price risk, Roberto Simon, head of project finance for the Americas at Societe Generale, retold at a natural gas conference in London in 2012.

The developer’s customers would take the risk of fluctuating gas prices. They would have to pay Cheniere for its services, regardless of the profit or loss on the gas at the other end of the market. That clinched the cash flow for Cheniere.

When Cheniere approached French bank Societe Generale for help with financing, the bank told the company to get its federal export authorization and construction approval, gather up a lot of equity, get 20-year contracts with investment-grade customers, and then come in to talk about a loan, Simon said.

Cheniere, which had no ready cash of its own, raised $2 billion for its equity contribution toward the almost $6 billion project; $1.5 billion from Blackstone Group-affiliated investment funds and a combined $500 million from a Singapore investment bank and U.S. private-equity firm.

Cheniere first spent the equity on construction, Simon said, only later gaining access to the debt. The company’s bonds for the project were rated below investment grade by Standard & Poor’s. That was more a reflection on the parent company than on the LNG export project itself.

“For us it was a matter of life and death,” Souki said in 2012. His company was close to bankruptcy and needed to find a way to salvage its investment. It still had half of its 1,000-acre riverfront site available for construction, which made it very economical to add liquefaction units and operate an export terminal.

Cheniere was one of several U.S. import terminal owners that saw the value of turning their unused or underused operations into profitable export facilities. The dock, storage tanks and other facilities already were in place. Owners of other terminals in Louisiana, Texas, Maryland and Georgia made the same business decision and are now sending out LNG, with two more North American export plants under construction at the facility-sharing site of an import terminal.

However, the growth of U.S. LNG exports to South America, Asia and Europe has not gone unnoticed by large industrial users in the domestic market. The businesses don’t like paying higher prices for natural gas, and figure keeping more of it at home would help reduce prices.

The Industrial Energy Consumers of America sent a letter on Nov. 22 to U.S. Energy Secretary Jennifer Granholm, offering a dozen reasons why the department should scale back export approvals. Two months earlier, the same group urged the department to require exporters to throttle back their cargoes.

Not our fault, an LNG trade group said of current high prices for U.S. buyers.

“This is a short-term sort of issue,” Charlie Riedl, executive director for the Center for Liquefied Natural Gas, told the Houston Chronicle the day after the industrial group issued its call to scale back exports.

“We’re not going to run out of natural gas because of LNG exports,” Riedl said.

Larry Persily can be reached at [email protected].

12/01/2021 - 10:38am