Back in February, leading energy information company, Energy Intelligence, reported that interest in long-term LNG projects remains robust despite the Biden administration pausing new licenses for LNG export projects still in the planning pipeline. The Department of Energy justified the pause by highlighting lingering fears that shipping large volumes of U.S. gas overseas could erode America’s competitive advantage of cheap energy critical for energy-intensive industries such as steelmaking and petrochemicals and also seeks to address concerns by environmental activists who have argued that the entire LNG manufacturing, delivery and consumption cycle has a much higher carbon footprint than currently touted.
Well, we are in the final stretch of the current year, and fresh data coming in proves that Energy Intelligence was right on the money. According to a recent LNG report Wood Mackenzie, 58 million tons per year (tpy) of U.S. 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 upon in the whole of 2023. That’s not too shabby given the circumstances that prevailed for much of that period. Even better, LNG contracting is now free to proceed unhindered after a U.S. federal judge struck down Biden’s pause. Back in July, U.S. District Judge James Cain in Lake Charles, Louisiana, sided with 16 Republican-led states in holding that the U.S. Department of Energy’s freeze on approvals of LNG exports was «completely without reason or logic.»Cain said these states were likely to succeed in showing the pause contravened the Natural Gas Act of 1938.
There were several notable trends in that WoodMac report. First off, contracting by traditional buyers (end users) for use in their home markets clocked in at 38 million tpy of long-term deals, just 12 million tpy shy of last year’s record. Second, big deals are dominating again, with 60% of the volumes signed this year having a deal size greater than 2 million tpy. Meanwhile, dealmaking continued in the U.S. despite the pause, although total volumes contracted from U.S. projects declined. A total of 18.9 million tpy (including the 5 million tpy Aramco deal) new U.S. LNG SPAs and HOAs were inked in the first eight months of 2024, with activity focused more on projects less affected by the hiatus. Notable deals include Rio Grande LNG Train 4 with ADNOC for 1.9 million tpy and Aramco for 1.2 million tpy. Texas LNG has also signed tolling agreements, SPAs, and HOAs for 3 million tpy with EQTCorp. (NYSE:EQT) and other counterparties as the company tries to achieve the commercial thresholds required to raise debt financing for its project.
In April 2024, Cedar LNG signed the second 20-year LNG capacity deal for 1.5 million tpy with Pembina Pipeline Corp.(NYSE:PBA) following a similar deal with ARC Resources (OTCPK:AETUF) signed in 2023. Woodfibre LNG signed a third and final deal with BP Plc (NYSE:BP) that left it fully booked, while Texas-based Mexico Pacific completed marketing for its first three trains.
Overall, Wood Mackenzie expects contracting activity to remain high, a bullish prediction for U.S. LNG sector considering that additional North American LNG contracting is required for projects to move forward.
Middle East Captures LNG Market Share
Another major developing trend is that Middle East LNG sellers are doing brisk business, taking advantage of the Biden pause to steal market share from their U.S. rivals.
QatarEnergy signed a 20-year LNG deal with India’s Petronet. The deal ensures 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 have been offering oil linked slopes in the low 12% DES range, helping lure price-sensitive buyers.
LNG contract prices are typically expressed as a slope, or percentage, of Brent prices.
For example, a 12% slope of the current front-month Brent price of $73.23 a barrel would translate to LNG price of roughly $8.79 per mmBtu, though the contracts may not be that straightforward on pricing. Linking LNG supply contracts to the price of oil is a practice dating back to the 1970s.
Several other Middle Eastern suppliers have been active. Oman LNG converted its binding arrangements with Shell Plc (NYSE:SHEL), Jera, SEFE, and BOTAS signed over the past two years to SPAs. ADNOC announced 15-year HOAs for LNG supplies with European and Asian buyers totalling 3.4 million tpy from its Ruwais projects alongside HOAs for a total of 1.6 million tpy with portfolio players. These agreements gave ADNOC the confidence to make a FID (Final Investment Decision) for the project in June 2024.