LNG contracting rises despite new project freeze in Washington

In February, leading energy intelligence company Energy Intelligence reported that interest in long-term LNG projects remains strong despite the Biden administration. discontinuance of new licenses for LNG export projects still under planning. The Energy Department justified the pause by citing lingering concerns that shipping large volumes of U.S. gas abroad could erode America’s competitive advantage of cheap energy essential to energy-intensive industries such as steelmaking and petrochemicals, and also , tries to address the concerns by environmental activists who have argued that the entire cycle of LNG production, delivery and consumption has a much higher carbon footprint than currently promoted.

Well, we’re in the final stretch of the current year, and the new data coming in proves that Energy Intelligence was right on the money. According to one recent LNG report Wood Mackenzie, 58 million tonnes per year (tpy) of US LNG sales purchase agreements (SPAs), capacity agreements and heads of agreements (HOAs) were signed in the first nine months of 2024, compared with 94 million tpy of new LNG SPAs and HOAs agreed throughout 2023. Not too bad given the circumstances that prevailed for much of that time. Even better, LNG contracting is now free to continue unhindered after a US federal judge knocked down Biden’s break. In July, U.S. District Judge James Cain of Lake Charles, Louisiana, sided with 16 Republican-led states, arguing that the U.S. Department of Energy’s freeze on LNG export approvals was “completely without reason or logic.” . Cain said that these states are likely to succeed in showing the break violated Natural Gas Act of 1938.

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There were several notable trends in that WoodMac report. First, contracting by traditional buyers (end users) for use in their home markets saw 38 million tpy of long-term deals, just 12 million tpy less than last year’s record. Second, large deals again dominate, with 60% of volumes signed this year having a deal size of more than 2 million tpy. Meanwhile, deal-making continued in the US despite the pause, although overall contracted volumes from US projects declined. A total of 18.9 million tpy (including Aramco’s 5 million tpy deal) of new US LNG SPAs and HOAs were completed in the first eight months of 2024, with activity focused more on projects less affected by the break. Notable offers include Rio Grande LNG Train 4 cu ADNOC for 1.9 million tpy and Aramco for 1.2 million tpy. Texas LNG also signed fee agreements, SPAs and HOAs for 3 million tpy cu EQTCorp. (NYSE:EQT) and other counterparties as the company tries to reach the commercial thresholds needed to obtain debt financing for its project.

In April 2024, Cedar LNG signed the second 20-year LNG capacity agreement for 1.5 million tpy cu Pembina Pipeline Corp.(NYSE:PBA) following a similar deal with ARC Resources (OTCPK:AETUF) signed in 2023. LNG from wood fibers signed a third and final agreement with BP Plc (NYSE:BP) that left her fully booked while in Texas Mexico Pacific has completed marketing for the first three trains.

Overall, Wood Mackenzie expects contracting activity to remain high, a bullish prediction for the US LNG sector, given that additional North American LNG contracts are needed to keep projects going.

Middle East captures LNG market share

Another major developing trend is that LNG sellers in the Middle East are doing guilty business, taking advantage of the Biden hiatus to steal market share. from their US rivals.

QatarEnergy signed a 20-year LNG deal with India Petronet. The agreement provides for the supply of 7.5 million tonnes per annum (mtpa) of liquefied natural gas (LNG) to India. Indian buyers are gradually returning to the long-term market thanks to low gas prices. WoodMac reported that some sellers offered oil-related slopes in the low 12% DES range, helping to attract price-sensitive buyers.

LNG contract prices are usually expressed as a slope or percentage of Brent prices.

For example, a 12% slope in the first-month Brent price of $73.23 per barrel would translate into an LNG price of about $8.79 per mmBtu, although contracts may not be so straightforward in as for the price. Linking LNG supply contracts to oil prices is a practice that dates back to the 1970s.

Several other Middle Eastern suppliers have been active. Oman LNG converted its binding arrangements with Shell Plc (NYSE: SHEL), Jera, to the Headand BOTAS signed in the last two years with APS. ADNOC has announced a 15-year HOA for LNG supplies with European and Asian buyers totaling 3.4 million tpy from its Ruwais projects alongside the HOA for a total of 1.6 million tpy with portfolio players. These agreements gave ADNOC the confidence to make an FID (Final Investment Decision) for the project in June 2024.

By Alex Kimani for Oilprice.com

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