Feedgas demand to nearly double by 2028
Key source of demand growth for producers
US gas producers are confident that impacts from the Biden administration’s decision to suspend issuance of key LNG export permits for new projects will be limited over the next few years as they ready plans to serve incremental demand growth from projects already under construction.
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A number of proposed exports terminals actively seeking offtakers could be affected by the stoppage in new permits, but the decision is not expected to impact major existing LNG export projects or those already under construction. Any material impact to the expansion of gas liquefaction on the US Gulf Coast would be of major consequence to gas producers, whose future success will be closely tied to rising LNG export demand.
“I mean, there’s really no impact through — at least [not until] the end of 2026,” Jeremy Knop, EQT’s chief financial officer, said Feb. 14 during the company’s fourth quarter 2023 earnings call. “So, as we look at the market today, we don’t really see any change in the LNG build-out timeline.”
Fellow Appalachian producer Antero Resources is expecting “very little impact on LNG demand growth into the end of this decade” regardless of the duration of the stoppage in new export authorizations, Justin Fowler, senior vice president of gas marketing and transportation, said Feb. 15.
Planning for 2024-26
While other demand sectors flatten out or decline by 2028, LNG feedgas demand is forecast to rise to nearly 25 Bcf/d over the same period from about 13 Bcf/d in 2023, according to data from S&P Global Commodity Insights. Those growth projections include the suite of projects which already obtained authorization from the Department of Energy to export cargoes to countries with which the US does not have a free trade agreement and which are expected to start up relatively soon.
The 18.1 million mt/y Golden Pass LNG facility in Texas and Venture Global’s 20 million mt/y Plaquemines LNG in Louisiana could both begin commissioning work in 2024, with demand from the facilities expected to ramp up into 2025.
“It’s enough of a demand launchpad for them to be excited about,” Benchmark Company research analyst Subash Chandra said via email Feb. 20, distilling the upstream players’ attitude. “Through 2026 expect another 6+ Bcf/d, then we’ll worry about the next stage.”
With benchmark natural gas futures priced below $2/MMBtu through June, operators are generally guiding conservatively for this year until that new incremental feedgas arrives. In 2024, Antero plans to hold total production flat, with net natural gas production expected to average around 2.16 Bcf/d.
However, the company’s leadership said it remains bullish on what the next few years will bring with the startup of the new export projects considering that three-quarters of Antero’s gas production is bound for Gulf Coast markets, where key trading locations offer a premium to Henry Hub.
Permitting hold
The Biden administration announced on Jan. 26 the election-year “pause” on permits issued by the US Department of Energy that authorize projects to export LNG to countries that lack free-trade agreements with the US, representing most of the global LNG import market.
The impact of the permitting suspension on the non-FTA permits will largely depend on its duration, which remains unclear. The DOE has not specified a timeframe, saying it will last until the agency can update how it considers impacts of LNG exports on climate change, the US economy, and national security.
The permitting freeze has raised questions about the role of the US as an LNG exporter but mostly longer-term because it mainly affects proposed projects. The freeze is widely expected to last at least through the November presidential election.
As a result, S&P Global Commodity Insights analysts delayed their expectations of all final investment decisions on new LNG projects in the US and in Mexico, where projects need the DOE approvals because they would be supplied with US gas. About 30 million mt/year of probable export capacity additions in the US and Mexico are at risk because of the permitting hold, the analysts said.
Some US natural gas producers have long-term LNG export deals with projects hit by the freeze.
EQT, for example, has preliminary long-term agreements for 2.5 million mt/year of LNG export capacity across three proposed US terminals. Two of the projects – Commonwealth LNG and Lake Charles LNG, both in Louisiana – have pending applications before the DOE that are both directly impacted by the permitting freeze.
Several other projects that have existing non-FTA licenses face permitting deadlines in the coming years that could require them to seek extensions from the DOE. The DOE said it will still consider applications for extensions during the suspension, but the review process for extensions is also uncertain.
Chesapeake has announced long-term LNG export deals totaling 1.5 million mt/year tied to one project that faces significant uncertainty related to extensions: the Delfin LNG project offshore Louisiana. The Delfin LNG project’s non-FTA license contains a June expiry deadline.
Chesapeake executives are scheduled to discuss the company’s full-year 2023 earnings on Feb. 21.
