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12/05/2024
Can U.S. LNG projects stay competitive amid soaring costs and shifting global dynamics? Rising construction costs and geopolitical uncertainties reshape the liquefied natural gas (LNG) export landscape. Analysts at Poten & Partners warn that these challenges could make new U.S. projects less attractive globally.
BALLOONING CONSTRUCTION COSTS
U.S. LNG projects are grappling with skyrocketing costs. Venture Global’s Plaquemines LNG plant in Louisiana is now $2.3 billion over budget, and the Golden Pass LNG facility, backed by Exxon Mobil and QatarEnergy, is exceeding its original estimate by over $2 billion.
These inflated costs come as the U.S. positions itself as a major LNG exporter. Jason Feer, Business Intelligence Chief at Poten & Partners, cautions that while the U.S. has substantial gas reserves, they aren’t as cheap to extract as many assume.
“We’ve got a lot of gas in the U.S., but we don’t really have vast amounts of really cheap gas,” Feer said.
RISING DEMAND AND INFRASTRUCTURE NEEDS
Feer predicts U.S. natural gas prices could climb as high as $6 per million standard cubic feet, driven by increased demand from LNG exports, a projected 20% growth in electricity usage, and substantial investment in aging infrastructure.
While existing LNG exporters may benefit from these trends, developers of new projects face additional hurdles, including higher capital requirements and the challenge of securing long-term buyers.
DECLINING LNG PRICES ADD PRESSURE
Even as costs rise for new U.S. projects, global LNG prices are trending downward. Feer predicts an average price of $12 per million British thermal units (MMBtu) for the next decade, further squeezing developers' margins.
THE PATH AHEAD FOR U.S. LNG
For developers along the U.S. Gulf Coast, the biggest challenge isn’t regulation—finding long-term customers willing to pay premium prices. While existing exporters may continue to thrive in a tighter market, the future of new projects hangs in the balance as costs rise and global competition intensifies.
Key numbers to watch:
- Plaquemines LNG: $2.3 billion over budget.
- Golden Pass LNG: Over budget by $2 billion.
- U.S. Natural Gas Prices: Could rise to $6 per million standard cubic feet.
- Global LNG Prices: Trending to $12/MMBtu over the next decade.
The U.S. LNG industry is at a crossroads. Rising costs, evolving global energy policies, and geopolitical risks are making it more challenging for new players to secure a foothold in the market. Existing exporters, however, may have the upper hand in navigating this turbulent landscape.
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