US gas exporter Cheniere bets on lasting demand with expansion plan

Cheniere Energy, the largest US liquefied natural gas exporter, is planning a major expansion at its flagship terminal on the Louisiana coast, aiming to capitalise on surging overseas energy demand after Russia’s full-scale invasion of Ukraine.

The company said on Thursday that it would launch the permitting process to add 20 million tonnes per year of gas export capacity at its Sabine Pass LNG plant, up by 74 per cent from the facility’s current capacity of 27mn tonnes. Cheniere pioneered foreign sales of US LNG when it began exports from Sabine Pass in 2016.

Cheniere’s ambitious growth plans are a sign of optimism from the US LNG industry that a boom in fuel demand set off by Moscow curtailing supplies into Europe last year is set to persist for decades.

“The need for further investment in LNG capacity was again laid bare last year. Over the next few decades, both the supply and demand side trends are supportive of new liquefaction infrastructure,” Anatol Feygin, Cheniere’s chief commercial officer, said on a call with investors.

Cheniere did not provide cost estimates for the project, but at current construction rates it would likely top $10bn. The Houston-based company says it hopes to start exporting from the new facilities by the end of the decade, and said it could add carbon capture and storage capabilities to reduce the plant’s greenhouse gas emissions.

Feygin said that Cheniere was trying to sign up “European and Asian buyers” for the project. Adding capacity to an existing plant would give it a cost advantage over other competing projects, he said.

US natural gas prices have fallen nearly 80 per cent from their highs last year, largely because a warm winter has weakened demand for heat. Domestic US gas production also remains strong.

Prices have traded well below gas sold overseas, underscoring the attractiveness of US exports. The US benchmark gas price was trading at about $2.28 per mn British thermal units on Thursday, compared to Europe’s main hub price of about $16/mn Btu.

US President Joe Biden last year struck a deal with European Commission president Ursula von der Leyen to encourage US exporters to keep supplying the continent with natural gas at higher volumes through to the end of the decade.

However, the Biden administration is under mounting pressure from climate activists not to grant permits for new long-term oil and gas projects they argue will lock in carbon emissions for decades to come. Cheniere will have to obtain federal permits before proceeding with the expansion.

Cheniere’s expansion plans come as some other US gas executives have warned that a recent drop in Europe’s energy prices and the continent’s climate ambitions have cooled interest in new export projects.

The US has the capacity to export about 110mn tonnes of LNG a year, and projects currently under construction are set to cement its status as the world’s biggest exporter, with about 140mn tonnes of capacity by 2025.

Competitors of Cheniere, including Sempra Energy and NextDecade, already have permits and have lined up long-term customers for rival projects. They hope to make final investment decisions this year that would add significantly to capacity.

Wood Mackenzie, a consultancy, says more than $100bn could be ploughed into US LNG projects over the next five years.