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U.S. LNG on firm growth trajectory with Freeport LNG coming soon

But tank safety issues at Sabine Pass likely to prevent month-on-month supply growth in July

The United States can look forward to another LNG plant coming on stream soon. Following almost four years of construction Freeport LNG’s Train 1 has begun receiving feedgas following pre-commissioning that started in February this year. Meanwhile, trains 2 & 3 are in advanced stages of construction. Pre-commissioning comprises a series of dry runs to test the integrity of the pre-treatment and cooling facilities individually and in concert.

Freeport will miss July deadline set in February

Freeport LNG originally announced its first commercial LNG export to be on 25 July 2019, a date we consider unlikely at this point. All LNGCs currently inbound for the Gulf of Mexico are earmarked for Cove Point LNG, Cameron LNG or Sabine Pass LNG.

This leaves the LNGC newbuild Diamond Gas Sakura (IMO 9810020), currently waiting off the Altamira LNG terminal in Mexico. The vessel is the third Sayaringo STaGE type vessel built by Mitsubishi Heavy Industries and Imabari Shipbuilding that was designed to set new efficiency benchmarks in its DWT class.

Diamond Gas Sakura was ordered by the JERA consortium – a joint venture by Japanese utilities Tokyo Electric Power (TEPCO) and Chubu Electric – in October 2014. Notably, JERA is one of three Freeport LNG investors alongside Osaka Gas and Global Infrastructure Partners. 

Potential candidate for first Freeport cargo

Like its sister ships Diamond Gas Rose (IMO 9779238) and Diamond Gas Orchid (IMO 9779226), Diamond Gas Sakura’s initial purpose was to ship gas from Cameron. However, JERA proved to be flexible with vessel deployment when the Diamond Gas Rose and Orchid were delivered before Cameron LNG was commissioned, instead carrying LNG from Papua New Guinea, Russia, Malaysia and Australia to Japan, LNG Unlimited data shows.

Notably, Cameron LNG is not yet in full scale production, having export only three cargoes since May. Concurrently, the SK Resolute (IMO 9693173) – originally headed for the terminal – is idling in the central Gulf of Mexico, likely waiting for a late July or early August cargo loading. Based on past performance, this could cover Cameron’s current shipping capacity requirements. Assuming Freeport will stick at least close to its July deadline, this leaves room for the possibility of the Diamond Gas Sakura (IMO 9810020) docking at Freeport LNG instead of Cameron LNG.

Sabine Pass provides the bedrock for U.S. LNG growth…

Even if Freeport LNG does not manage to export its first cargo on 25 July, the rise of United States LNG is impressive, with an average growth rate of around 10% year-on-year since July 2017.

Although the country’s first large-scale export plant – Sabine Pass LNG – accounts for the lion share of LNG exports to date, Corpus Christi LNG and Cove Point LNG have also contributed significantly. Together they have taken U.S. LNG exports to almost 50 million tonnes (mmt) at the time of writing. The country’s third major plant, Cameron LNG, is still in the process of ramping up production.

Yet it looks as if the country’s LNG exports are not going to fall in line with their past average growth rate in July this year. LNG Unlimited tracking data indicates four additional cargo liftings by the end of the month, one of which we expect to take place at Cove Point LNG aboard the Energy Innovator (IMO 9758832) on 24 July. 

…so a decline at Sabine Pass will hamper growth continuity 

According to that schedule, U.S. LNG exports would decline by 9% month-on-month in July. To continue growth at 10% mon-on-month, more than eight additional LNGCs would have to load U.S. LNG before 31 July.

Much of the likely negative monthly growth is due to an apparent slowdown of production at Sabine Pass LNG, which at this point we expect to have exported 1.57mmt by end-July compared to 1.8mmt in July 2018. 

The likely reason behind this drop are ongoing repair issues at two of the plant’s LNG storage tanks, implicating 40% of storage capacity. 

Cracks in Sabine Pass’ facade

In a letter dated 9 July 2019, the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) and the Federal Energy Regulatory Commission (FERC) both warned Sabine Pass’ operator Cheniere Energy against using the tanks until they have certified their safety. A number of cracks were discovered in their casings that lead to gas leaking in January 2018.

The letter highlights a number of instances where Cheniere did not comply with request for equipment tests and documentation, even after the parties had settled on mandated repairs out of court.

The warning letter comes at a time when Cheniere is pushing to grow its operations by making its Final Investment Decision (FID) to build a sixth 4.5mtpa train at Sabine Pass, initially budgeted at $3 billion, in May this year. Despite delays, U.S. LNG capacity has grown at great speed to monetise U.S. shale gas that would otherwise have insufficient market access. However, as seen with Australian LNG megaprojects such as Gorgon LNG, complicated structures built with haste are often plagued with protracted teething problems.