Author: Joseph Murphy, Natural Gas World | 13 June, 2023
Can you illustrate Cheniere’s importance to the European gas market in numbers? (volumes that are delivered/market share)?
Cheniere’s LNG has been a vital part of the European response to Russia’s war in Ukraine and has shown how security of supply, in the form of reliability of production and flexibility of delivery, are vastly important for this moment, and for the decades to come. Cheniere produced about 11% of all LNG worldwide in 2022 and more than 70% of Cheniere’s LNG was exported to Europe, by Cheniere or our customers. That is equivalent to just over 40bn m3 of natural gas, once re-gasified. That was approximately double the volume that went to Europe from our facilities in 2021. Given that Russian pipeline supplies to Europe were reduced by just over 70bn m3 last year, the increase in our LNG deliveries to Europe covered about 30% of the reduction from Russia. We’re thankful that we and our customers could help to keep homes warm, lights on and industry running during this challenging time for the European gas market.
What are Cheniere’s thoughts on the outlook for LNG availability in Europe. The continent avoided gas shortages in the 2022-23 winter in part thanks to ample LNG supply. But what impact is the expected revival in Chinese LNG imports likely to have?
Ample LNG supply has been important, as well as gas demand reduction efforts by Europe, plus some good luck with the weather. In addition, we saw a COVID-related slowdown in the Chinese LNG market in 2022 that released significant volumes to Europe. We know that fairly limited volumes of new LNG production capacity are set to be added to the industry over the next few years. So overall, the key question is how existing volumes of LNG will be allocated between markets during that time. The rate of the Chinese LNG demand rebound is uncertain, but so is the weather, French nuclear capacity, further Russian supply reductions, growth in renewables capacity and many other factors. It seems likely that Europe will receive more or less the same LNG volumes over the next few years – with a risk to the downside if some of these other factors go against it. So, although Europe has made it through the current winter and market conditions currently appear to be relatively soft compared to where we were in the middle of last year, we should not be complacent about the challenge represented by the next few years.
In Cheniere’s view, what is the value of long-term LNG supply contracting for ensuring energy security and affordability?
Most of our volume is sold under structured, stably priced, long-term contracts, at levels well below the spot prices for gas and LNG we have recently experienced. The prices in our long-term contracts were on average around 33% (one-third) the level of the average LNG spot price for 2022. Long-term contracted LNG provides reliable and affordable supplies to our long-term customers. The value of that proposition became very apparent last year when there was not enough LNG supply to meet all global demand and as a result spot prices for the LNG that was available under short-term sales became highly elevated and highly volatile. The question for buyers is to what extent they value security of supply and price stability, versus being able to ‘take the rough with the smooth’ in the spot market. Most of our customers have some domestic market obligations that mean they need a measure of predictability for at least some of their fuel supply.
Walk us through Cheniere’s LNG export growth trajectory.
Since our LNG export start-up in 2016 we now have nine liquefaction trains operating across our two facilities known as Sabine Pass Liquefaction in Cameron Parish, Louisiana, and Corpus Christi Liquefaction in South Texas. This represents a capacity of ~45mn metric tons/year of LNG production in total across the two facilities. That means we are currently loading around two LNG cargoes per day and are the second largest LNG operator by total production capacity in the world. We have exported more than 2,700 cargoes since start-up, to 39 markets around the world. We recently exported our 2000th cargo from the Sabine Pass facility – reaching that milestone faster than any other terminal. And we plan to continue to expand to meet growing market demand. We have another 10mn mt/yr of capacity under construction at Corpus Christi, our Stage 3 project, plus a further 25mn mt/yr of expansions planned across the two facilities. If realised, these would take us to 80mn mt/yr of total capacity, by around the turn of the decade. For comparison, the total global LNG trade will be around 400mn mt/yr this year.
Can the company provide an overview of recent progress at its Corpus Christi Stage 3 LNG project since an FID was taken last year and what milestones the company hopes to pass in the near term?
The project consists of seven mid-scale trains with a total production capacity of 10mn mt/yr. We took an FID on the project in June of last year, and as of January this year it was 24.5% complete, with above ground construction activities starting to now become very apparent on the site just to the north of the existing facilities. Our expectation is that the facilities will start to provide much needed volumes to the global LNG market by the end of 2025. In March of this year, we filed an application to add a further two midscale trains alongside the seven of the Stage 3 project, and if our timing goes to plan our contractor Bechtel will hopefully move seamlessly through construction of all nine in sequence.
What about progress at the Sabine Pass LNG expansion project? How quickly does the company hope to get through the permitting process, what is the current guidance for when an FID might be taken and what needs to happen before that goal is reached?
Observing strong demand for further LNG volumes in the current market (we signed more than 10mn mt/yr of new long-term contracts in 2022), we have recently pre-filed an application to expand our Sabine Pass facility by a further three large-scale trains, adding a total of approximately 20mn mt/yr of production capacity to the facility. We have indicated that we expect to have first LNG production from these facilities by 2030. In order for FID to be made, we will need to sell the large majority of production under long-term contracts, receive our necessary permits and raise the capital to pay for the construction of the facility. We are pretty confident that this is highly achievable.
What is Cheniere doing to minimise the environmental impact of its upcoming LNG developments?
It is not just about the upcoming LNG developments, we are working to reduce the environmental impact of all of our facilities, existing and upcoming. [We are proud to have reduced the GHG emissions intensity of the LNG from our facilities each year since start-up through engineering and operational initiatives (details are outlined in our CR report)].
With respect to the future facilities in particular, we have carbon capture accommodations proposed for the acid gas removal unit included in the Sabine Pass expansion proposal. The acid gas removal unit, or AGRU as we call it, is designed to remove CO2 and other acid gases from the feed gas. This produces a pure stream of CO2 that can then potentially be captured. We will continue our discussions with others for the utilisation and/or storage of the CO2 and announce anything on those matters in due time.
But we are also leveraging our unique position as the leading LNG exporter in the US market as a conduit between producers and customers in order to effect change along the full LNG supply chain. We believe greater transparency and better data related to emissions will benefit all and we are actively working to improve both by leading collaboration throughout the natural gas and LNG value chain. In particular we are working on quantification, monitoring, reporting and verification (QMRV) collaborations with upstream natural gas suppliers, midstream operators, emissions detection technology providers and independent academic institutions. This effort is field-testing novel monitoring technologies to measure emissions and improve our understanding of GHG emissions across the value chain and look for opportunities for emissions reductions. We are also now delivering Cargo Emission Tags (CE Tags) to our customers with estimated life cycle GHG emissions associated with each cargo from our terminals.