Episode 157 | LNG Logistics | Glenfarne Energy Transition
If the fracking boom was a gamechanger for domestic energy supply, America’s building spree of liquefied natural gas (LNG) terminals is a gamechanger for the international markets.
At 105 MPTA (144 bcm/yr), the United States is already the largest exporter in the world. With an additional 12 facilities already permitted, the U.S. could quintuple its closest competitor, Qatar.
Of the facilities either operating or planned, the U.S. Gulf Coast is where a majority of all domestic exports are based. My guest, Glenfarne Energy Transition, has two facilities planned: Texas LNG (4 MTPA) at the Port of Brownsville, and Magnolia LNG (8.8 MTPA)) near Lake Charles, La.
“We see that as an extension of our broader business,” says Glenfarne Founder & CEO Brendan Duval, whose assets include 27 renewable projects and 12 “grid stability” power plants. Brendan says the LNG terminals make up the “flexible fuels” leg of this trifecta.
At first these projects were planned to serve “high-growth emerging markets.” The war in Ukraine changed that.
“Suddenly we realized we had LNG facilities that were available to ween Europe off Russian gas,” he says.
Glenfarne joins a long list of LNG developers that are not traditional “supermajors.” Brendan says this is not the case in other parts of the world, but says access to capital markets and expertise, along with Gulf stability have led to a surge in “independent development,” from companies like Cheniere Energy (profiled in Episode 14), Venture Global, and Freeport LNG (covered in Episode 44). Brendan says this LNG model closely resembles the independent power producer model we see in the U.S.
So, how does an LNG contract work? Brendan says there are typically three deals struck:
- Glenfarne and the offtaker
- Glenfarne and the gas supplier
- Glenfarne and the financiers
What if prices fluctuate? “A well-structured LNG project is broadly insulated from [price volatility] because the volatility part is contracted away,” explains Brendan, “either to a producer or an end-market buyer that is naturally positioned to handle that risk.” He also adds that the deal is mainly for the liquefaction fee and that the commodity price for the gas is essentially a “pass-through.”
Brendan explains that deals #2-3 listed above typically last 15-20 years. If an LNG facility were to operate beyond that initial contract, he sees it follow a trajectory common with a lot of energy assets:
- Initial investment period—20-30 years
- Original design life—30-50 years
- Excess-of-design life—Extended through maintenance, engineering, capital expenditures, and new design parameters
With more facilities like Glenfarne’s two projects expected to come online and only so many ports along the Gulf Coast, will we expect many more announcements?
“I do think a lot of the optimal locations are taken,” says Brendan, adding that the barriers to entry are more about the complexity of building, permitting, pipeline access, and commercialization.
“For those of us in the business, we’re very proud of what we’re doing for the energy transition.”
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