WoodMac: High demand could pave the way for $100B of new LNG projects in US

Due to high prices and the demand for energy security, the US is poised to become the leading exporter of LNG in 2023 and potentially pave the way for $100 billion in new developments to support long-term growth, according to a new report from energy intelligence group Wood Mackenzie.

Illustration; Archive; Courtesy of WoodMac

In 2022, the US was the third-largest exporter of LNG at 76.4 million metric tonnes per annum (mtpa). The report notes that, with the resumption of the Freeport facility, the US will surpass Qatar and Australia this year to export 89 million mtpa of LNG.

Liquefaction capacity of current top three global LNG exporters. Source: Wood Mackenzie

Furthermore, Wood Mackenzie predicts that based on the combination of projects already under construction and momentum of potential projects, US LNG capacity could grow between 70 million mtpa and 190 million mtpa before the end of the decade, potentially more than doubling current exports.

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This would be achievable with the launch of numerous new projects, potentially leading to as much as $100 billion in new projects in the next five years.

“Record-high prices and the need for energy security drove buyers, which included portfolio players and US producers and infrastructure companies, to seek long-term US LNG deals in 2022 and created huge contracting momentum for projects”, said Giles Farrer, Head of gas and LNG asset research for Wood Mackenzie.

“Last year alone, 65 million mtpa of long-term US deals were signed, dwarfing the 18.5 million mtpa we saw in 2021. This activity has pushed a host of pre-final investment decision (FID) US projects forward and we could see a wave of FIDs this year and next.”

Next five-year investment into US LNG projects by FID status. Source: Wood Mackenzie

According to Farrer, projects will be undertaken by both privately and publicly-owned developers and most pre-FID projects are currently seeking external financing for this investment.

“In most cases, project financing will support between 60-80% of the required capital, with the remainder either financed via equity raises and/or balance sheets”, he added.

However, the potential for cost increases is challenging developers as they move forward, particularly through supply-chain-triggered inflation and competition for resources, Wood Mackenzie said.

“Our benchmarking analysis indicates we have already seen inflation of over 20% on the US Gulf Coast, compared to projects which were built in the last five years”, explained Sean Harrison, Research Analyst, gas and LNG for Wood Mackenzie. “As developers continue to push more projects forward, competition for service contracts will rise, creating a squeeze on both workforce and material prices. This could cause further cost inflation, along with delays to some projects.”

Harrison added that despite rising costs, competition for customers is keeping liquefaction fees low, potentially between $2-$2.5 per million British thermal unit for fixed-price long-term agreements, challenging profitability.