Next wave of natural gas projects on way

The United States became an exporter of liquefied natural gas this year with Cheniere Energy’s first shipments from Louisiana, but a glut of LNG globally is creating questions about when a “second wave” of LNG export projects will move forward.

Five U.S. LNG export projects are under construction, including ones in Freeport and Corpus Christi, but many others are awaiting both regulatory approval and corporate decisions on whether to invest billions of dollars during a market downturn.

Perhaps the most brazen project is The Woodlands based Next Decade’s Rio Grande LNG project in Texas. NextDecade proposes building what could be the nation’s largest LNG export facility, with the first of three phases scheduled to come online in 2020. The $6 billion project would be constructed on 1,000 acres at the Port of Brownsville near the Mexican border.

“We want to be the leader of the second wave of export projects out of the U.S.,” said NextDecade CEO Kathleen Eisbrenner, a former executive at Royal Dutch Shell before founding the company in 2010.

Despite the large supplies of natural gas coming from Australia, Russia and

the Middle East, many industry analysts and executives expect LNG demand to pick up at some point after 2020 as countries reduce their reliance on coal, in part from international accords on climate change. The expansion of the Panama Canal, which will be able to accommodate LNG tankers, will make Asian markets more accessible to Texas and other Gulf Coast exporters.

“It’s like a drug,” Eisbrenner said. “Once a country gets a taste of LNG they never want to go back.”

These projects are risky though, particularly since it remains unclear how long it will take for demand to work through the supply glut. Most analysts expect LNG demand and prices to rise over the long term, but it remains unclear when that might happen. So, for companies investing billions in projects that take years to complete, timing is everything.

Luana Siegfried, energy analyst with Raymond James in Houston, said it might take longer than many in the industry believe, noting weaker European demand, slowing growth in China, and the potential for Japan to return to nuclear power now that more than five years have passed since the Fukushima Daiichi nuclear disaster.

Spencer Dale, BP’s chief economist, expects liquid natural gas supplies to grow by 40 percent over the next four years as new LNG facilities begin operations, meaning it could take another decade for demand to catch up and prices to rise. As a result, many new projects won’t be profitable at first, he said.

But, he added, “Over a period of time, that big growth market in Asia is going to mean you’re going to need a lot more gas.”

The shale boom turned the United States into the world’s largest natural gas producer and drove energy companies to seek new markets. Transforming the gas into a liquid through a supercooling process known as liquefaction allows it to be shipped worldwide. LNG terminals that once accepted imports are being retooled to ship exports.

The first project online, developed by Houston’s Cheniere Energy, began exporting in late February to South America, Asia and Europe.

The Federal Energy Regulatory Commission in May began reviewing NextDecade’s Rio Grande application. Eisbrenner hopes to begin construction as soon as September 2017 to bring the first of six liquefaction units, called trains, online by the end of 2020.

All six trains would produce 27 million tons of LNG a year or 3.6 billion cubic feet a day — roughly the same size as Cheniere’s Sabine Pass project in Louisiana, if it’s built to capacity.

The biggest challenge for NextDecade is locking in long-term contracts with LNG buyers. Without guarantees from customers to buy the LNG at set prices over periods of 20 years or so, the risk would be too great to secure the investment needed to build the project. NextDecade only has non-binding agreements thus far.

NextDecade has financial backing from a few New York firms and hedge funds — York Capital Management, Halcyon Capital Management and Valinor Management. NextDecade declined to disclose the amount it has raised.

Eisbrenner recently canceled NextDecade’s proposed Pelican Island LNG project in Galveston partly because of concerns about not having enough property, as well as to keep the focus on Brownsville.

NextDecade is facing both competition and opposition in Brownsville. Two smaller LNG export projects, one by Houston-based Texas LNG, the other by Chicago’s Exelon Corp. are also under review. Analysts expect only one proposal to move forward.

Environmental and community activists in the Rio Grande Valley also are pushing a “Save RGV from LNG” campaign to oppose all three projects.

Still, Eisbrenner believes future market demands and access to Texas’ cheap and abundant shale gas are on her side.

“I like our timing,” she said. “There needs to be a break between the first and second wave.”