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Cameron LNG Requests 6-year Delay to Expansion

Sempra-led joint venture put a preliminary stop to ‘Expansion Project’ of Cameron LNG and gains time to assess market development as trading conditions for US LNG toughened in 2H 2019

Reflecting the increasingly tough market for US LNG, Cameron LNG has requested to be able to delay the construction of the ‘Expansion Project’ of its LNG plant in Louisiana until May 2026 in a regulatory filing with the US Federal Energy Regulatory Commission (FERC) dated 24 January. The LNG development’s joint venture does not currently plan to make the final investment decision (FID) before mid-2021. Under the current FERC-approved plan, Cameron LNG would need to put the ‘Expansion Project’ into service by end-2020.

Cameron was once to be a 25mtpa plant

The developer – a joint venture headed by US energy firm Sempra – envisioned the facility to be expanded by two additional trains and two more storage tanks beyond the current base 3-train project to take total capacity to almost 25mtpa, although those plans now seem remote in view of last Friday’s filing.

Two trains currently in operation

The Cameron plant was first conceived as a 3-train export plant in 2014 and is currently operating on two 4.98mtpa (million tonnes per annum) trains. Under Phase 1, the plant’s first train came into full commercial operation under its tolling agreements on 29 August 2019 after major construction fished in November 2018.

Commercial operations began with 6 spot cargoes

However, the plant had already begun with the shipping of 6 spot cargoes as part of performance testing via the Marvel Crane, the BW Everett, the GasLog Sydney and the SK Resolute in May that year, our LNG Market Tracker shows. We are currently expecting the Marvel Crane to lift its fourth cargo from the plant in Hackberry, Louisiana later this week.

Train 2 in operation since December 2019, Train 3 ready by September 2020

Phase 2 of the project comprises the construction of Trains 2 and 3 to increase the site’s gas liquefaction capacity by 9.97mtpa to 14.95mtpa. Train 2 entered commercial operations on 23 December last year, with Train 3 expected to commence commercial operations by September this year.

Train 1 operating at capacity, train 2 slowly ramping up

Although exports from the plant have seen continued growth since May 2019 (Train 1 is producing at capacity according to our data), we estimate Cameron LNG will need roughly 6 months to bring Train 2 to full capacity.

Although managing a bumper year, US LNG faced headwinds in 2H 2019

Although year-on-year trading grew robustly by 78% in 2019, US LNG faced a tricky 2H as production ramp ups in Australia, weaker North Asian demand on account of Chinese tariffs and milder-than-expected weather required traders of US LNG cargoes to hunt high and low for buyers elsewhere. Accordingly, the share of the Far East as a destination of Cameron LNG cargoes has seen continued decline since October 2019 with European destinations led by Spain and Poland increasing offtake of US LNG significantly.

Several large-scale US LNG projects remain in the pipeline with their future increasingly uncertain

Several more large-scale projects waiting to be developed in the US, but Cameron LNG’s move to push back development beyond its initial plan of 3 trains means their future has become less certain. Projects such as Port Arthur LNG, Gulf LNG Liquefaction, Eagle LNG Partners and Venture Global LNG have FERC approval but lack final investment decisions. It remains to be seen whether any of these will be constructed as planned since a massive expansion in Qatar is likely to add downward pressure on global LNG prices by around 2024.

Silver lining with price-conscious buyers transitioning to gas

However, we see a silver lining in the transition towards gas as a major fuel in Pakistan and India. As price conscious buyers of LNG, the countries are known to shop around for the best prices available. Consequently, flexible US cargoes may prove to be attractive options. The two countries increased their US offtake by 167% and 110% y/y in 2019, respectively.