Competition Heating Up For Asian LNG Markets

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U.S. LNG exports played a leading role meeting Europe’s urgent demand for natural gas after the EU curtailed Russian imports in 2022 following its invasion of Ukraine.

Increasing LNG production from new or existing Gulf Coast projects is also expected to sail to Europe, targeting an expected 140 million tonne per year of new European demand as the continent continues to wean itself from Russian supply. Venture Global LNG’s announcement last week it is expanding the scope of its Plaquemines project in Louisiana falls neatly into that pattern.

But other recent news that Alaska’s Qilak LNG plans to export to Asian markets creates the potential for a new LNG global trade dynamic — U.S. volumes going west.

U.S. LNG projects are currently concentrated on the Gulf Coast. The region has well-established natural gas infrastructure, making transport and liquefaction inexpensive. There are also fewer regulatory and environmental hurdles — proposed LNG projects on the West Coast have been delayed or cancelled the last few years, including the Jordan Cove project (spearheaded by Pembina Pipeline Corporation), Oregon LNG, and Puget LNG.

Qilak LNG sees growing Asian demand as over-riding those factors. The developers will take hope from the recent approval of ConocoPhillips’ $8-billion Willow project in Alaska, and from the Biden administration’s recent encouraging statements around LNG export development. Qilak LNG’s chief executive officer Mead Treadwell is a former lieutenant governor of Alaska, and his experience could help steer the project through the regulatory process.

Rival volumes

The main existing competitor in the Pacific for Qilak LNG will be volumes from Yamal LNG, which has proven the economic viability of shipping LNG through Russia’s Arctic waters using icebreaking vessels. Qilak LNG will use similar vessels, although a shorter portion of their journey will be in icy waters.

Following EU sanctions, Yamal LNG volumes have been increasingly heading east. China received at least 20 of 30 shipments from the Novatek-led Yamal LNG project bound for Asia last year, according to vessel tracking data.

Qilak LNG is banking on delivering lower costs compared to Yamal LNG. It also has a competitive advantage over Gulf Coast volumes that must travel further to Asian markets, facing both fees and delays at the Panama Canal.

The Qilak LNG developers have other plans to keep costs in check. Unlike the rival Alaska LNG project, it doesn’t plan to build a pipeline to the south coast of the region, instead shipping cargoes from the north coast, which is closer to North Slope gas supply. The gas will be sourced through an agreement with Exxon Mobil Corporation.

The project plans to use gravity-based structures — weighted legs that help anchor floating platforms — to allow the liquefaction unit to be stationed offshore, connected by a six-mile pipeline.

Qilak LNG says its offshore plan lowers capital expenditures per tonne of production dramatically compared with previous onshore proposals developed in Alaska and North America.

Addressing undersupply

The Qilak LNG developers hope to be shipping four million tonnes of LNG annually from 2028.

By then it will have a much larger new competitor, LNG Canada, whose liquefaction trains will be capable of producing up to 14 million tonnes annually by late 2025. LNG Canada partners will also be targeting supply to Asian markets. Other smaller Canadian projects including the Haisla-led Cedar LNG could also be onstream by 2030.

Meanwhile Yamal LNG has a technical 16.5 million tonnes of annual capacity.

With at least 34.5 million tonnes annually headed to the same part of the world, is there a concern of oversupply?

In a tight global market where suppliers can re-export cargoes to Europe, it seems unlikely.

Shell plc’s Global LNG Outlook, released last month, expects demand will greatly outweigh supply after 2027 (see chart).

“A clear supply demand gap is opening up…. The world will continue to need more LNG and more projects coming onstream later this decade,” said Steve Hill, Shell’s EVP of energy marketing, during the launch of the LNG outlook report.

The closer those projects are to the twin demand drivers of Northeast Asia or Europe, the better they will fare.

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