LNG sale and purchase agreements signed in 2023 support U.S. LNG projects
Note: Prospective=approved, proposed, or under construction; Ph=phase; LNG=liquefied natural gas; Exp=expansion.
Developers advanced three liquefied natural gas (LNG) projects to the construction phase in 2023, following the signing of sale and purchase agreements (SPA)—contracts specifying the terms and conditions of LNG supplies between seller and buyer—underpinning the projects. Developers signed contracts with buyers for almost 22 million metric tons per year of LNG last year, or about 3 billion cubic feet per day (Bcf/d) of natural gas, according to data from the U.S. Department of Energy (DOE) and from company websites. The volumes contracted in 2023 totaled 52% less than the contracted volumes in SPAs signed in 2022.
The final investment decisions (FID) for these projects came before DOE paused review of LNG export permits to countries with which the United States does not have a free trade agreement. All the projects that reached FID in 2023 already had export approvals from DOE.
Venture Global began construction of Phase 2 of the Plaquemines export facility in Louisiana. In Texas, Sempra began construction on the first phase of its Port Arthur project, and NextDecade began construction of the first phase of the Rio Grande project. The in-service date of these projects under construction ranges from third-quarter 2024 to 2027.
Note: Approved=received respective regulatory approvals; Ph=phase; LNG=liquefied natural gas; SPA=sale and purchase agreement.
Also included in the nine projects that signed SPAs in 2023 are three proposed projects and two projects that have received their respective regulatory approvals. Even though the approved projects, which would add approximately 3.8 Bcf/d of U.S. LNG export capacity, have export approvals from DOE, they are still under consideration by the companies and have not yet reached FID.
The terms in the SPAs signed last year were typical of many long-term U.S. LNG export agreements. About three-quarters of the volumes in the 2023 SPAs had a contract duration of 20 years, beginning when the project starts commercial operations; the earliest start date would be the third quarter of 2024. Moreover, about 94% of the volumes in the SPAs were sold on a free-on-board (FOB) basis, which means the buyer takes ownership of the LNG at the loading terminal and pays for the product at that delivery point. More than one-half of the 2023 SPAs are indexed to the U.S. benchmark Henry Hub natural gas price compared with about two-thirds of the SPAs signed in 2022. The volumes in the remaining 2023 SPAs would be using a different pricing mechanism, such as indexing to an oil benchmark price or another natural gas benchmark price.
The LNG volumes contracted in 2023 are relatively evenly split between offtake companies based in Europe and those based in Asia, indicating the likely destination for those cargoes. However, destination flexibility is a common feature of most of the SPAs, where the buyer can deliver LNG to any destination as long as it complies with DOE export authorizations and U.S. law.
Principal contributor: Katy Fleury