$14 billion LA Natural Gas Plant Shelved. Gulf Region Shrugs.

$14 billion LA Natural Gas Plant Shelved. Gulf Region Shrugs.

[Updated]: The current glut in natural gas and lowered prices for the commodity is driving a South African energy firm to shutter plans for a Liquified Natural Gas plant in Louisiana worth up to $14 billion. Industry watchers and locals took the news in stride. The region is booming in LNG plants and the action is in delivering it to overseas markets.

European markets are a key target, which helps introduce some competition to Russian producer Gazprom. More on that a little later.

The Associated Press says Sasol has dropped plans for an $11 billion to $14 billion U.S. plant in Mossville, just outside of Lake Charles, to convert natural gas to liquid fuels and to pull out of Canadian shale.

“The company had announced in January that it was delaying final investment plans for the plant near Lake Charles because of a collapse in world oil prices,” the AP adds.

The Sasol project was part of a $100 billion investment plan in the region that includes an $11.1 billion ethane cracker plant that could create 5,000 construction jobs and some 500 permanent jobs when the facility goes online, local officials tell reporters.

The United States is awash in natural gas from the shale-drilling boom that is remaking the country as a global energy provider. LNG plants are a big piece of that mix.

One of the biggest trends in the energy industry in the past few years has been the construction of LNG export-readying facilities in the U.S. after Congress dropped its 40-year export ban on oil (and natural gas) in 2015.

The Federal Energy Regulatory Commission (FERC) has worked up a chart showing the latest permits for LNG production.

Despite Sasol’s decision to shelve its LNG plant, the U.S. Gulf Coast is “expected to be a crude oil, natural gas and LNG export hub for years to come, even as supply, demand and geopolitical swings shift market dynamics,” says energy data and news provider Platts.

Quoting parent company’s S&P’s recent research outlook on the gas industry, Platt’s notes:

“At the heart of the forecast is the fact that US supplies are abundant and cheap, and billions of dollars of new infrastructure is being added to link those resources to overseas destinations, particularly in Asia, Europe, the Middle East.”

Platts continues:

There is ample natural gas supply in the US, particularly from the Northeast, where the prolific and low-cost Marcellus and Utica shale plays will continue to supply much of the growth in natural gas demand, the report said. Coal-to-gas switching, increased LNG use, and exports to Mexico are helping to drive that.

“Northeast regional differentials continue to remain below the Henry Hub price but we believe they will narrow given the significant amount of takeout capacity being built in the region over the next several years,” S&P Global Ratings said. 

Companies with strong acreage positions in the Permian, which spans West Texas and southeastern New Mexico, should see the largest growth in 2018 due to its low breakeven drilling costs and double-digit returns, even with $50/b crude prices.

Emerging markets are hungry for LNG exports from the U.S., says Ning Lin, an analyst with consulting firm RBAC. He expects the next five to 10 years to see a major ramp-up in facilities that convert natural gas to its exportable state in LNG.

A recent deal in Poland is a case in point. Polish Oil and Gas Company Group (PGNiG) announced last week that it has signed a five-year contract for LNG supply sourced from the Sabine Pass LNG terminal in Louisiana.

The WSJ picks up on the export trend in an editorial that points out how LNG exports to Europe, particularly Poland, are countering Russia’s regional influence. The Kremlin-owned energy company Gazprom “currently provides more than two-thirds of Poland’s gas, and other European nations also rely heavily on Russian energy.”

But Russia’s era of go-freeze-yourself foreign policy may be drawing to a close. In 2015—the year Moscow cut off gas supplies to Ukraine—the U.S. surpassed Russia as the world’s top natural-gas producer. By February 2016 major shipments of American LNG were headed abroad for the first time. Two months after U.S. LNG from the lower 48 states hit the export market, Poland’s PGNiG announced that it didn’t intend to renew its long-term agreement with Gazprom, which will expire in 2022.

The size of the delivery is about 30 billion cubic feet, which the piece points out is modest by comparison.

But it’s “most likely the first in a series of contracts,” and Poland’s long-term goal is to “increase the energy security in this region, which has historically been dominated by Russian gas,” executives from PGNiG explained. By offering an alternative to Russian energy, the U.S. empowers its European allies and weakens the Kremlin’s coercive regional influence.

It’s one reason among many that the Gulf Region is not sweating the Sasol decision.

[Updated 11/28/17 to include details on the PGNiG LNG contract.]

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