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U.S. LNG export projects remain on bullish track – a plus for shipping

First cargo loaded at Cameron LNG. Photo courtesy of Sempra Energy

The U.S. continues to solidify its role as a major player in the global liquefied natural gas (LNG) arena. Export projects are advancing at a rapid clip – and the higher the volumes from the United States, the better for shipping demand, given longer distances traveled by U.S. cargoes versus those of Australia and Qatar.

On June 3, Cheniere Energy (NYSE: LNG) confirmed that it had made a final investment decision (FID) on construction of the sixth liquefaction ‘train’ at its Sabine Pass export facility in Louisiana, with completion slated for 2023 (export project facilities, which liquefy the natural gas for transport by ship in the form of LNG, are constructed in distinct units known as trains).

Cheniere also confirmed funding progress for Train 3 at its facility in Corpus Christi, Texas; FID is expected in 2020.

On May 31, Cameron LNG confirmed that the first commissioning cargo had been loaded on a ship from Train 1 of its new liquefaction facility in Louisiana. Cameron is a joint venture between Sempra Energy (NYSE: SRE), Total, Mitsui & Co. and Japan LNG Investment (a company jointly owned by Mitsubishi Corporation and NYK).

NextDecade (NASDAQ: NEXT), which has proposed the Rio Grande LNG export project in Brownsville, Texas, announced on May 28 that it had signed engineering, procurement and construction contracts with Bechtel for Trains 1-3, and said that an FID is expected by the end of September, with a targeted start-up of 2023.

Also on May 28, Freeport LNG announced it had received the necessary export authorization for its fourth train from the U.S. Department of Energy. In yet another announcement that same day, Venture Global disclosed a $1.3 billion equity investment in its proposed Calcasieu Pass project.

Randy Giveans, shipping analyst at investment bank Jefferies, highlighted the “multiple positive developments for U.S. LNG projects” in a new client note, adding, “We remain bullish on LNG shipping rates for the remainder of 2019 and 2020 as several new liquefaction facilities come online.”

U.S. projects presently have a total LNG export capacity in operation of 31.75 million metric tons per annum (mtpa): Sabine Pass Trains 1-4 (4.5 mtpa each); the 5.25 mtpa Cove Point terminal operated by Dominion Energy in Maryland; Corpus Christi Train 1 (4.5 mtpa); and Train 1 at Cameron LNG (4 mtpa).

An additional 54.6 mtpa of capacity has already reached FID and is or will soon be under construction – Sabine Pass Trains 5-6 (4.5 mtpa each); Corpus Christi Train 2 (4.5 mtpa); Elba Island in Georgia (2.5 mtpa); Cameron LNG Trains 2-3 (4 mtpa each); Freeport LNG Trains 1-3 (5 mtpa each); and Golden Pass in Texas (15.6 mtpa), a joint venture between ExxonMobil and Qatar Petroleum that got the green light in February.

Of the projects that have reached FID, 34.5 mtpa of aggregate capacity is scheduled to come online in 2019 or 2020. In other words, U.S. export capacity is virtually guaranteed to more than double over the next two years.

Even more projects could reach FID by the end of 2019, which could promise a further surge in future capacity. The projects seen as most likely to move ahead are NextDecade, which is proposing three initial trains with capacity of 4.5 mtpa each; Venture Global’s 10 mtpa Calcasieu Pass project in Louisiana; Tellurian (NASDAQ: TELL), with its 27.6 mtpa Driftwood project in Louisiana; and Train 4 of Freeport LNG (5 mtpa).

If all of those went forward, it would add another 56.1 mtpa in export capacity. And on top of that, there are numerous additional projects on the drawing board behind those front-runners.

The recent flurry of activity on the U.S. LNG export front implies positive future momentum for LNG shipping demand.

U.S. exports are an important demand driver for publicly listed ship owners that have exposure to LNG shipping spot rates, including GasLog Ltd (NYSE: GLOG), GasLog Partners (NYSE: GLOP), Golar LNG Ltd (NASDAQ: GLNG), and Flex LNG, which is expected to debut on NYSE through a direct listing this month.

Because a considerable proportion of U.S. exports go to buyers in Asia, requiring a very long-haul voyage transiting the Panama Canal, U.S. outbound volumes soak up more ship capacity than exports from other sources.

During his company’s first-quarter conference call with analysts, GasLog Partners’ chief executive officer Andrew Orekar pointed out that the historical global multiplier is 1.3 ships of demand per ton of exports per year. Since LNG exports began from the U.S. Gulf coast in 2016, the multiplier for U.S. LNG exports has been 1.8 ships, said Orekar. That equates to 38 percent more shipping demand due to the longer average voyage distance.

Greg Miller

Greg Miller covers maritime for FreightWaves and American Shipper. After graduating Cornell University, he fled upstate New York's harsh winters for the island of St. Thomas, where he rose to editor-in-chief of the Virgin Islands Business Journal. In the aftermath of Hurricane Marilyn, he moved to New York City, where he served as senior editor of Cruise Industry News. He then spent 15 years at the shipping magazine Fairplay in various senior roles, including managing editor. He currently resides in Manhattan with his wife and two Shih Tzus.