A ship docks at the Dominion Cove Point LNG terminal in Cove Point, Maryland. LNG professionals in Louisiana are concerned about lagging commodity prices, but believe the LNG industry is on the verge of a major breakout. With more than $88 billion worth of LNG projects either underway or in the pipeline in Louisiana, many expect the state to become a major hub for the LNG industry in the coming years. Photography courtesy the Center for Liquified Natural Gas
Liquefied natural gas plants aren’t built overnight, so long-range economic forecasts—rather than today’s supply and demand—play a much bigger role in an owners’ investment decisions. And while a global overabundance of natural gas and cheap oil is dampening current LNG export expectations, many owners remain bullish on Louisiana continuing its trajectory toward becoming a major hub by 2020.
In fact, with more than $88 billion in LNG projects planned, under construction or in operation, the state is poised to become the center of the LNG universe.
Regardless of short-term market variables, Jason French, chairman of the Louisiana Energy Exports Association, says satisfying long-term demand requires “a major LNG facility to be built somewhere in the world every year between now and 2035.”
The World Trade Center of New Orleans and several leading LNG companies launched LEEA in February to promote industry growth and lobby for pro-LNG public policies.
“The global LNG market is undergoing a shift, reacting to the fact that the U.S. has become a significant exporter of LNG,” says French. “By the end of the decade the U.S. will be one of the top three LNG producers in the world, and the bulk of that LNG is coming from Louisiana.”
The current downturn aside, he says the industry consensus is demand will spike within the next six years.
The optimisim is fueled by significant worldwide demand, especially from U.S. allies in Europe and Asia who want a safe, stable and secure source of energy that also lessens their dependence on Russia.
“Folks in India and China know where Lake Charles is because a number of these projects are centered in the southwest Louisiana region,” French notes.
Those representing the industry may gush with unbridled optimism, yet there’s no denying increased risk—short-term or not—has led to the cancelation of several previously-announced projects.
“Some companies are standing down their investments based on short-term reactions to what’s happened in the market,” French says. “Those still pursuing investments are going to be well positioned to meet the real run on LNG in the 2022, 2023 timeframe.”
Count Baton Rouge among the places where LNG aspirations have sputtered in recent months. The region’s distance from the Gulf of Mexico precludes it from attracting the the kind of billion-dollar export facilities that the Lake Charles area is attracting.
The one bright spot is the late 2016 groundbreaking of a NuBlu Energy facility in Port Allen. The plant—supplying LNG for regional commercial, rail, marine and industrial applications—will have an initial startup capacity of 30,000 gallons per day, ramping up to a 90,000 gallon daily capacity once it’s fully operational later this year.
“We wanted to be positioned to meet the demands of the emerging marine market for both brown water and blue water fueling, and we absolutely believe we have achieved that goal,” Josh Payne, a general partner for the Texas-based company, said when the project was announced.
The facility is scheduled to have a transfer system, allowing for the loading of LNG transport trailers and ISO containers designed to help meet the needs of the company’s regional customer base.
Another Baton Rouge area LNG deal didn’t end as well. Houston-based Waller Marine announced plans last fall to build a plant at the Port of Greater Baton Rouge that would initially produce 200,000 gallons of LNG daily. The deal fell through in late January, and New Orleans-based Barriere Construction has since acquired the 59-acre tract on Scenic Highway with access to the port, for $3 million.
It was a case, says Port of Greater Baton Rouge Executive Director Jay Hardman, of Waller investing too far ahead of the market.
“They were taking a chance trying to stimulate and develop the market there (in marine LNG distribution),” he says. “Various ships, ferries and even some cruise ships are going to LNG fuel, and there is some talk of the brown water fleet doing the same thing. Then came the robust resurgence in oil and diesel being available and that slowed that process.”
Hardman, however, sees the conversion to LNG as inevitable.
“That fuel source and the advancement of it is going to continue—it’s just going be a little slower than what people had thought initially,” he says.
Thomas Hudson, president of G2 LNG in Baton Rouge, predicted a “natural gas revolution” when he spoke in early May at the Future of Trade Summit in Baton Rouge. Two months earlier, the company announced plans to add 500 acres to the site of its proposed $11 billion Cameron Parish LNG export facility to meet rising petrochemical demand. If it comes to fruition, the facility would cover 1,266 acres along the Calcasieu Ship Channel, approximately three miles inland from the Gulf of Mexico.
“Fracking has changed the historical unpredictability of natural gas,” Hudson says. “It is a truly transformative event for our country and Louisiana. We have the gas and the world wants the gas. The challenge is how do we get it out of the U.S. and into the global markets. In other words, what form will it take and what delivery systems will be used to deliver this gas to the world? LNG will be the biggest player.”
Regardless of one’s views of global warming, Hudson says worldwide pacts such as the Paris climate accord are good news for LNG suppliers.
“A move to reduce CO2 emissions is good for gas,” he says. “Due to these converging events you’ll see that the global market for gas increase and grow exponentially.”
David Dismukes, executive director of LSU’s Center for Energy Studies, says President Donald Trump’s decision to pull out of the Paris accord will register only as an infinitesimal blip in the LNG forecast models.
“If anything,” he says, “it would be positive for export growth because the natural gas is going to have to find another home if we wind up backing off policies here that have been promoting gas.”
Dismukes says two factors will drive increased LNG demand by the early 2020s: general economic growth in developing countries such as China, and the growing dependence upon natural gas as a worldwide fuel of choice.
“The industry has already grown by as much as 20 percent or so, and the more countries trade their natural gas the more facilities and infrastructure gets developed to handle it,” he says. “Additionally, the broader the market institutions, trading platforms and contractual relationships, the more you reduce the transactions cost in that business. The lower you reduce the risk, the more the business grows.”
G2 LNG’s Hudson says Louisiana is in the driver’s seat as the LNG market anticipates the surge in demand.
“Frankly, Louisiana is the complete package,” says Hudson. “It’s no wonder we’re attracting tens of billions (of dollars) in domestic and foreign investment in the natural gas value chain. It’s up to us to realize this potential and for Louisiana to dominate this new global age of gas.”
Central to LEEA’s mission is to emphasize the potential impact of the LNG industry upon both the state and U.S. economies. To date, its members include Tellurian Inc., G2 LNG, Magnolia LNG, Lake Charles LNG and Venture Global LNG. LEEA associate members include the Louisiana Oil and Gas Association and the Louisiana Mid Continent Oil and Gas Association. LEEA estimates its members’ investments will create about 20,000 temporary construction jobs and 2,000 permanent positions.
“We wanted to narrow the focus on what LNG exports mean to the state. A lot of folks hear about LNG development in Louisiana, but they don’t understand how significant it is for Louisiana and the country,” says French, who predicts that a single LNG facility in Louisiana could reduce the U.S. trade deficit by about $15 billion—and therefore, the state’s total LNG investment could single-handedly take a significant bite out of the total shortfall.