Brownfield expansion projects will reconfigure the US LNG market

With the first wave of US LNG export facilities coming online early 2016, there is renewed interest in the potential LNG export volumes from North America. Energy Insights believes that LNG exports will ramp up significantly to a total of about 14 bcfd (140 bcma) by 2030 – much more than the capacity of the facilities currently under construction – and enough to make the US one of the largest LNG exporters in the world. This projection is in part driven by the competitive position of under-construction brownfield facilities: if those facilities currently under construction were to expand, they would likely outcompete other facilities vying for uncontracted future demand.

Numerous LNG liquefaction projects are competing to meet future LNG demand growth. While uncontracted global demand will reach 10-11 bcfd (100-123 bcma) by the mid-2020s, over 47 bcfd (480 bcma) of LNG liquefaction projects have been proposed in the US alone and nearly the same amount from the rest of the world. Clearly, only a small percentage of these projects will be constructed. The lowest-cost providers will have the best starting position in the race to capture future demand. US brownfield projects are some of the lowest-cost providers in the world; five projects have already taken FID in the past four years – with many more advancing through this difficult contracting period.

The US brownfield facilities currently under construction have some distinct advantages in capturing additional uncontracted demand if they were to expand their capacity. Firstly, unlike most facilities around the world, they can avoid the additional upstream costs needed for expansion by sourcing incremental gas from the mature and liquid gas market in North America. Secondly, their costs would be relatively low due to their ability to leverage existing infrastructure e.g., pipelines, storage tanks. Lastly, US brownfield projects can exploit their recent experience in navigating the regulatory and financing processes.

Expansion of the first generation of US brownfield facilities is likely and could make the North American LNG market much less diverse than it may currently appear. Sabine Pass has already applied for an expansion and been approved by the Federal Energy Regulatory Commission (FERC) and Cameron just announced its intent to expand its output by approximately 67% (equal to 1.4 bcfd or 14.4 bcma). Expanding the other terminals of the first US LNG wave by just 50% would add an additional 3.5-4.5 bcfd (36-44 bcm) to the market. These additional volumes – equal to 4 medium-sized LNG projects – could push out other LNG projects in the US, Canada, or elsewhere in the world.

Authors: Rick Notarianni is an Analyst in Energy Insights, Peter Lambert is a Senior Expert at McKinsey