US pause on pending LNG projects to damper natgas, ethane prices

Al Greenwood

26-Jan-2024

HOUSTON (ICIS)–The pause that US President Joe Biden announced on Friday on pending LNG projects should lower the likelihood of natural gas demand exceeding supply.

Such a supply crunch would cause prices to rise for natural gas and ethane, the primary feedstock the US chemical industry uses to produce ethylene.

Biden’s pause applies to pending projects. It does not cover LNG plants that are already permitted and approved.

These projects will add more than 75 million tonnes/year of new LNG export capacity, nearly equal to the total amount of LNG the country exported in 2023.

The following chart shows those projects as well as those being built in Canada and Mexico.

Source: Energy Information Administration (EIA)

That is a lot of new liquefaction capacity, and those new plants will require additional natural gas to be produced and additional infrastructure to process and pipe the gas to the export terminals, said Barin Wise, vice president of feedstocks and fuels for Chemical Data (CDI).

The midstream industry will ultimately build the required infrastructure, but it will face challenges, especially with permitting, right of way and other obstacles associated with such projects, Wise said.

The pending projects covered by Biden’s pause will also need gas, and it is unclear if the US could produce enough additional natural gas quickly enough to meet the demand from those new liquefaction plants awaiting final investment decisions (FID) on top of the ones already under construction.

The US-based midstream company Enterprise Products raised such concerns earlier in 2023.

That kind of a supply crunch could cause prices for natural gas to increase. That, in turn would push up prices for ethane.

At the least, if Biden’s pause lasts long enough, it should limit the severity of such a supply crunch.

It is unclear how long the pause will last. If Biden loses the upcoming election in November, it is unlikely that the new president will continue the pause.

SUFFICIENT SUPPLIES OF GAS AND ETHANE
For now, the US has plenty of natural gas as well as ethane.

Working inventories of natural gas reached 3.45 trillion cubic feet at the end of 2023, the highest since 2015.

Prices reflect those supply conditions.

The front-month Henry Hub natural gas contract has been trading at around $2.50/MMBtu.

Ethane prices have been trading at around 20 cents/gal, 3.5 cents above the fuel value at Henry Hub.

BIDEN JUSTIFIES PAUSE ON CLIMATE CONCERNS
Biden said the pause will allow the administration to consider the effects that LNG exports would have on the environment, energy security and energy costs.

However, he stressed the environment in his announcement.

“This pause on new LNG approvals sees the climate crisis for what it is: the existential threat of our time,” he said.

REACTION FROM GAS PRODUCERS, CONSUMERS
The Industrial Energy Consumers of America (IECA), which represents gas consumers, had urged the administration to adopt such a pause.

It noted that the US Department of Energy has already approved 43.4 billion cubic feet/day of exports, a volume that represents 54% of US net gas supplies in 2022.

“As LNG exports increase, so do reliability and price risks for the natural gas and electricity markets,” the group said. “The hallmark of a sound and reasoned energy policy is that it should not have a negative impact on domestic consumers of energy.”

Trade groups that represent oil and gas producers opposed the pause, saying that LNG exports safeguards national security, creates domestic jobs, supports allies in Europe and contributes to climate goals.

It noted that US LNG helped Europe avoid the worst of the energy crisis that followed the start of the war between Russia and Ukraine.

“Moving forward with a pause on new US LNG export approvals would only bolster Russian influence and undercut President Biden’s own commitment to supply our allies with reliable energy, undermining American credibility and threatening American jobs,” said the groups, which include the American Petroleum Institute (API), the American Exploration and Production Council (AXPC), the Center for LNG (CLNG), the Independent Petroleum Association of America (IPAA), the LNG Allies and dozens of others.

Regarding climate, gas exports would help other countries replace more carbon-intensive fuels such as coal, the groups said.

Focus article by Al Greenwood

Thumbnail shows an LNG carrier. Image by Shutterstock.

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