2018 marked the third year that the United States engaged in global LNG exports and the third winter in which U.S. gas supply supported demand surges throughout the world. High growth and high demand has characterized Winter ’18-’19 as new export projects came online and consequently feedgas volumes spiked higher than ever before. Feedgas can be defined as dry gas volumes transported by natural gas pipelines to the LNG terminal which are then processed, liquefied (via cooling), and typically stored as LNG in tanks prior to the loading of LNG volumes onto a ship. Feedgas to U.S. LNG export facilities climbed to over 5 Bcf/d, the first time in history, on multiple days during the final two weeks of 2018 (Figure 1). Genscape projects feedgas capacity could increase to nearly 6 Bcfd by the end of Q2 2019. Two major liquefaction terminals headed by LNG major Cheniere began service months ahead of schedule. Corpus Christi Train 1 and Sabine Pass Train 5 began drawing an additional 1.5 Bcf/d collectively, supplied by new expansions like Kinder Morgan Louisiana's Sabine Pass Expansion Project and Transco’s Gulf Connector Expansion Project.
Below we discuss Q4 2018 North American LNG exports in light of changing market conditions. Next, we discuss North American LNG imports even in the midst of burgeoning export capacity. Finally, we highlight currently operational LNG export facilities as well as in-service expectations and timelines for facilities and trains expected to begin producing liquefied volumes in the first half of 2019.
Exports Shift Expectations
In this surge of scale, shipping dynamics adjusted as global market conditions changed. Regions that typically absorb most U.S. LNG supply deviated away from American imports toward the end of 2018, but total exports continued to grow (Figure 2). Mild Asian winters and geopolitical tensions with China detracted ordinarily robust demand in the Pacific Basin, leading to an unexpected lull in Japanese and Chinese imports. This was balanced by consistent exports to Mexico, which were initially forecasted to drop due to increased pipeline import capacity from the U.S. These projects were subsequently delayed to mid-2019 so Mexico remained reliant on LNG supply through the winter. Additionally, European imports exploded in Q4, nearly quadrupling from 29 Bcf in 2017 to 103 Bcf in 2018. This influx was primarily driven by the United Kingdom, which imported an impressive 35 Bcf in the wake of record cold temperatures. Ultimately, all supply displaced from Asian markets was absorbed as supply portfolios expanded across the world. This poses the question of how supply expansion momentum will react next winter, as approximately 3.5 Bcf in additional export capacity comes online in the upcoming year.
Imports Impact Domestic Markets
Ironically, substantial LNG imports followed the export capacity growth between Q3 and Q4 2018. At LNG import facilities, LNG is stored in tanks at the terminal which can be warmed and regasified, then placed onto a natural gas pipeline (or trucks) as dry gas sendout and transported to domestic gas users. The Northeast secured natural gas sendout volumes from regional LNG import terminals in the wake of last winter’s (winter ‘17-’18) weather-driven price blowout. This duality was epitomized by the bidirectional operations at Cove Point, where an export terminal simultaneously imported and liquefied for the first time in its history. Another anomalous import occurred recently, when a Floating Storage Regasification Unit (FSRU) moored at the Northeast Gateway offshore terminal, which has not received a cargo since February 2016. These traditionally contradictory trends illustrate that LNG can provide liquidity to U.S. markets. LNG import capability is especially important to the pipeline constrained areas of the Northeast, where sharp demand spikes are expected in the winter and comparatively sparse in the summer. Operational flexibility seems to be a theme for LNG terminals in regions where demand can come both domestically and globally throughout the year. Outside of the U.S., Q4 Mexican imports decreased year-over-year between 2017 and 2018 despite the aforementioned delay in pipe infrastructure expansion. Winter is not a particularly strong demand season in Mexican markets, which typically experience the most gas-for-power demand in the summertime (Figure 3). Even still, LNG import terminals Manzanillo and Altamira received approximately 51 Bcf collectively in Q4 2018; these terminals collectively saw roughly 64 Bcf in imports during Q4 2017. Canada on the other hand, only imported one cargo to the Canaport LNG terminal, sourced from Trinidad and Tobago. The Canaport LNG terminal flows to meet local New Brunswick demand, but most notably drives gas into the Northeast market during supply constrains via the Maritimes pipeline.
New U.S. Facilities and Trains: Forecast Updates
In our October 2018 LNG Winter Outlook Webinar Genscape’s LNG team discussed our in-service expectations and timelines for new facilities and trains projected to enter service during Winter ‘18-’19. In the sections below, we provide updates regarding the present status of each facility and where our current in-service date (ISD) forecasts stands. Note that Genscape defines ISD as the date that LNG production is initiated at a new liquefaction facility (or new train), which is estimated to occur when substantial deliveries to the facility line up with consistent operational signals detected by infrared (IR) cameras. “Substantial completion” on the other hand, is reported by the individual facility’s construction contractor and occurs when construction of a specific train reaches a level of completion that is in accordance with the construction contract documents. Sabine Pass Ship loadings at Sabine Pass LNG (Sabine), the largest demand point in the U.S., continue to increase. Total ship counts per operational Train also increased, giving insight into the growth of efficiency at Sabine (Figure 4). Train 5 went into service during the final week of October 2018 when Genscape IR monitoring coupled with nominations data showed that Sabine achieved first LNG production (Image 1). With the addition of Train 5, Sabine Pass continues to provide a reliable source of LNG while increasing their export capacity. In their most recent monthly construction report submitted to the FERC (for November 2018), Sabine Train 5 is still projected to reach substantial completion in Q1 2019.
Corpus Christi LNG (Corpus Christi) received authorization to introduce feedgas back on August 16, 2018 and reached in-service with the commencement of LNG production on November 23, 2018. On December 1, Genscape cameras, placed at the facility’s berth to view ship loading, captured the arrival of the Maria Energy. After ten days at berth, the Maria Energy departed from Corpus Christi early on the morning of December 11, carrying the facility’s inaugural commissioning cargo and signifying the first LNG export from a lower 48 greenfield LNG project. A total of four export cargoes left the facility since December 11, which aligned with our original projection. Our projection that we would see volumes to the facility peak in January 2019 was based on existing timelines of operational trains, with the expectation that official facility in-service would follow shortly thereafter. In Corpus Christi’s most recent monthly construction report submitted to the FERC (for December 2018), Train 1 is still projected to reach substantial completion in the first half of 2019.
Genscape estimates for the in-service of the Elba Island Liquefaction Project (Elba) changed since the start of the winter season. Our initial estimate heading into winter was for a late November 2018 start-up, which was based on comments made on Kinder Morgan’s Q2 2018 earnings call. In Kinder Morgan’s Q4 2018 earnings call, which took place the week ending the January 18, it was mentioned that Elba is expected to begin operations by the end of Q1 2019. Currently, nominations data still shows net volumes moving onto Southern LNG pipeline from the Elba facility. Sendout volumes from the facility averaged 18 MMcfd since December 1; however, commissioning operations are well underway.
Regulatory authorizations for Cameron LNG (Cameron) accelerated over the winter – the facility received three major regulatory approvals since mid-December. Cameron is now authorized to introduce “hazardous fluids” to commission the mixed refrigerant gas turbine (the second engine involved in the liquefaction process), the boil-off-gas compressors (which recycle evaporated LNG back into the fuel supply), and the flare pilot system (which is used to burn off excessive feedgas that will not be converted into LNG). Our best estimates put Cameron LNG Train 1 well into its commissioning phase with liquefaction operations expected to come online in the beginning of Q2 2019.
Winter ‘18-’19 is the first for Dominion Energy Cove Point LNG (Cove Point) after commencing liquefaction and export services this past April. Given its geographic proximity to the northeast gas markets and now both import and export capabilities, Cove Point is a particularly interesting facility to watch this winter. In December alone, Genscape noted eight export cargoes left the facility and received two import cargoes. Feedgas to the facility averaged 768 MMcfd since December 1.
U.S. gas supply continues to support global demand via LNG exports (Figure 5). Around the world, demand remains robust enough for newly initiated export projects to find buyers, illustrated by Q4 2018 volumes shifting from the Pacific to Atlantic Basins. We observed quicker than anticipated progress at U.S. LNG export facilities this winter; Sabine Train 5 and Corpus Christi Train 1, both commenced LNG production at the end of 2018. Genscape’s LNG analysts also alerted LNG clients about the recent acceleration in FERC approvals for Cameron Train 1 that may indicate accelerated progress at the new terminal in spite of several delays. Contrastingly, delays pushed the projected Elba ISD out again, this time to Q2 2019.
Genscape projects feedgas capacity could increase to nearly 6 Bcfd by the end of Q2 2019. Several more major facilities are scheduled to come online by the end of the year and there are even more proposed sites that have yet to secure funding. Whether or not all these prospective terminals will find investors and contracted buyers remains to be seen, but we will continue to monitor and model the progress of the ever-adapting North American LNG landscape. Stay tuned for our upcoming webinar that will discuss how winter shaped up against our expectations, and what our analysts are expecting for the coming summer season.