Cheniere, US gas exporter, bets on long-term demand through an expansion plan

Cheniere Energy, America’s largest liquefied natural-gas exporter, plans to expand its Louisiana flagship terminal. This expansion is in response to the growing overseas energy demand following Russia’s invasion of Ukraine.

On Thursday, the company announced that it would begin the permitting process to increase the Sabine Pass LNG plant’s annual gas export capacity by 20 million tonnes. This is 74% more than the current facility’s 27mn tonnes. Cheniere was the first to export US LNG from Sabine Pass, in 2016.

Cheniere’s ambitious growth plans show optimism from the US industry. They are a sign that fuel demand is expected to continue for decades, as a result of Moscow cutting off supplies to Europe last year.

Last year, “The need to further invest in LNG capacity was once again exposed.” On a conference call with investors, Anatol Feygin (Cheniere’s chief commercial officer) stated that both the demand and supply side trends will support new liquefaction infrastructure over the next few decades.

Cheniere didn’t provide any cost estimates, but it is likely that the project would exceed $10 billion at current construction costs. According to the Houston-based company, it plans to begin exporting from new facilities by the end the decade. It also stated that it could add carbon storage and capture capabilities to lower the plant’s greenhouse gases emissions.

Feygin stated that Cheniere was seeking to attract “European buyers and Asian buyers” to the project. He said that adding capacity to an existing plant would provide it with a cost advantage over competing projects.

US natural gas prices are down nearly 80 percent from last year’s highs. This is due to a warmer winter which has reduced demand for heat. The domestic US gas production is also strong.

The attractiveness of US exports has been underlined by the fact that prices have not fallen below gas sold abroad. On Thursday, the US benchmark gas price was $2.28 per million British thermal units. This is in contrast to Europe’s main hub cost of $16/mn Btu.

Last year, Joe Biden, the US president, reached a deal to help European Commission president Ursula von der Leyen continue to supply the continent with natural gases in higher volumes until the end of the decade.

Climate activists are urging the Biden administration to refuse permits for long-term oil/gas projects. They claim that this will lead to carbon emissions for many decades. Before Cheniere can proceed with the expansion, he will need to apply for federal permits.

Cheniere’s expansion plans are coming as other US gas executives warn that a recent drop of Europe’s energy prices has cooled interest in new projects.

The US can export approximately 110mn tons of LNG per year. Projects currently under construction will help cement the US’s position as the world’s largest exporter.

Cheniere’s competitors, such as NextDecade and Sempra Energy, have permits and have secured long-term customers to support their rival projects. They expect to make investment decisions in the coming year to increase capacity.

Wood Mackenzie, an international consultancy, estimates that more than $100 billion could be invested in US LNG projects within the next five-years.