Barcelona — North American shale gas is cheap and abundant, factors that have fixed the world's attention on the continent to fuel the bulk of future LNG export growth.
But there are challenges ahead.
From pressure to consider new pricing mechanisms and more flexible terms to the potential of greater difficulty accessing feedgas supplies, the dozen or so US projects that are expected to make up the second wave of export capacity have a lot to consider, analysts, developers and market observers said Wednesday as the Gastech conference in Spain wrapped up its third day.
"LNG buyers could have to be chasing gas around the United States," Kristy Kramer, Wood Mackenzie's head of Americas gas research, told a group of several hundred global market leaders.
Kramer said the US Gulf Coast is expected to get more crowded after 2020, and the pipeline capacity needed to reach supply will be harder to come by.
However, US producers' strategies were also changing, with an increasing willingness to take US pipeline capacity and gain exposure to the international LNG markets. As inter-basin pricing spreads are starting to widen out, producers are also keener on exploring the business opportunities of participating in the global LNG markets.
While Henry Hub is expected to remain under pressure in the years to come, as high oil forward price curves keep associated gas production growing, international LNG prices are rising, largely driven by growing consumption from China and emerging Asian markets.
The Platts JKM has averaged around $9.50/MMBtu in 2018 to date, up by more than 50% year on year, on more balanced fundamentals in the key Asia Pacific region.
Terminal developers, meanwhile, have sought to address the feedgas access issue by proposing to build new pipelines. Others are seeking to tap into increasing associated gas production in the Permian Basin that spans parts of Texas and New Mexico.
Tellurian, the owner of the proposed Driftwood LNG export terminal in Louisiana, went beyond its plans to build three new pipelines in the region. It bought its own acreage in the nearby Haynesville shale and plans to drill for its own feedgas for Driftwood, in the hopes of ensuring steady access to supply.
In an interview with S&P Global Platts on the sidelines of the conference, CEO Meg Gentle said Tellurian plans to acquire additional acreage in the Haynesville to support its project after it commercializes Driftwood in the next few months.
"Love the Permian, but for us not as an asset acquisition," Gentle said.
Gas that it sources from that play would be bought and delivered via the Permian Global Access Pipeline that it has proposed to build.
In a traditional tolling model that a number of LNG export developers have chosen, the buyer of the capacity is responsible for procuring the feedgas and having it delivered to the liquefaction facility.
In Cheniere Energy's case, it runs a full-service operation at its Sabine Pass export terminal in Louisiana and plans the same when its Corpus Christi, Texas, facility starts up later this year.
"We feel very comfortable with the commodity risk because of the abundance of supply in the United States," Cheniere's senior vice president of gas supply and trading, Corey Grindal, said at the conference.
COMMERCIAL EFFORTS
While Wood Mackenzie estimates US LNG exports to rise to 120 million mt/year by 2030, the sector's global competitiveness could help offset the supply challenges. That will require success on the commercial side, something developers were aggressively pursuing with prospective buyers as the conference neared its conclusion Thursday.
Tellurian, for instance, has had some "important meetings" at the conference with potential partners, Gentle said.
"The No. 1 question we get is on timeline," she said.
Tellurian has pitched a business model under which offtakers would pay $1.5 billion for an equity interest in Driftwood Holdings, which will consist of entities including the terminal, that will give them the right to lift 1 million mt/year of capacity from Driftwood for the life of the terminal. They would pay the lifting cost and use the regasified LNG themselves, or they could pocket the difference between the lifting cost and what the cargoes will fetch in the market.
While Tellurian has been firm on the amount of capital it is seeking from its partners, which it will use to fund construction and its drilling acreage purchases, it is trying to be flexible on when it taps the funds.
"The partners have asked if we can reduce the draws, how can we stretch that out," Gentle said. "We're working on several ideas to help them in that fashion."
