Excelerate Energy's Texan liquefied natural gas
terminal plan has become the first victim of an oil
price slump threatening the economics of U.S.
LNG export projects.
A halving in the oil price since June has upended
assumptions by developers that cheap U.S. LNG
would muscle into high-value Asian energy
markets, which relied on oil prices staying high to
make the U.S. supply affordable.
The floating 8 million tonne per annum (mtpa)
export plant moored at Lavaca Bay, Texas
advanced by Houston-based Excelerate has been
put on hold, according to regulatory filings
obtained by Reuters.
The project was initially due to begin exports in
2018.
Excelerate's move bodes ill for thirteen other U.S.
LNG projects, which have also not signed up
enough international buyers, to reach a final
investment decision (FID). Only Cheniere's Sabine
Pass and Sempra's Cameron LNG projects have
hit that milestone.
Back when LNG and crude oil prices were riding
high in February, Excelerate, founded by Oklahoma
billionaire George Kaiser, applied for permits to
build the facility.
Eleven months on, its submission to the U.S.
Federal Energy Regulatory Commission on Dec. 23
said that uncertainty generated by a steep
decrease in oil prices has forced it to conduct a
"strategic reconsideration of the economic value
of the project" and to suspend all activities until
April 1, 2015.
"Due to the recent global market conditions, the
company has determined that, at this time, this
project no longer meets the financial criteria
necessary in order for us to move forward with
the capital investment," a company spokesman
told Reuters.
Stiff economic headwinds are making new
developments tough going.
Prices that LNG projects can charge for long-term
supply are falling from historic highs as new
producers crowd the market, which is already
oversupplied due to slowing demand and rising
output that has seen spot Asian LNG prices halve
this year.
At the same time, major consumers from Japan
to South Korea and China are seeking to offload
some of their long-term LNG supply
commitments, contributing to the glut.
Fading demand
Excelerate Energy will update the regulator on the
status of Lavaca Bay in April, 2015, according to
the filing.
The export plant operates under a tolling model,
whereby the developer sells liquefaction capacity
to LNG consumers who then must arrange for
shipping to transport the fuel.
Typically companies seek to lock-in buyers for
around 85 percent of a project's capacity before
reaching an investment decision.
Excelerate hints in the filing that lackluster
demand for capacity was behind the suspension,
saying that only "renewed interest of potential
counterparties" could get it moving again.
Even before the oil price slide, U.S. LNG projects
were struggling to sign up the big Asian buyers
needed to underpin multi-billion dollar
investments, resorting finally to tapping vestiges
of demand left in Europe.
Seen in the light of plus-$100 a barrel oil,
projects to liquefy and export U.S. gas by ship
promised major cost savings to Asian buyers
reliant on costly oil-linked gas supplied by
Australia and Qatar, which generated huge
demand.
The advantage of U.S. export plants was that the
LNG costs would reflect local benchmark Henry
Hub gas prices, currently trading around $4 per
million British thermal units (mmBtu), plus
shipping and liquefaction costs.
"The oil price plunge makes U.S. LNG with prices
linked to Henry Hub potentially uncompetitive
with LNG from other sources especially those
using an oil price linkage," independent consultant
Andy Flower said.
Prior to the oil price crash, the U.S. discount to
rival Brent-linked LNG supply from Qatar and
Australia was around $8-$9 per mmBtu. Now
those supplies represent a cost saving over U.S.
projects.
"With U.S. LNG no longer looking to be the cheap
LNG that off-takers have been seeking, finding
companies prepared to commit to tolling fees for
20 years has become more challenging," Flower
said.
www.businessinsider.com/r-exclusive-oil-price-crash-claims-first-us-lng-project-casualty-2014-12

The beginning of the crash of USA. Experts have predicted Wednesday, 28 January 2015 as the day USA will crash.