Is the U.S. LNG Market Getting Too Crowded? – A Deep Dive With Poten’s Jason Feer

Hello, everybody, and welcome to another episode of NGI's Heavenflow podcast. I'm Jameson Cochlan, managing editor of LNG and I'm joined today by Jason Fear, global head of business intelligence at Coatman Partners. Jason, welcome back to the show. It's always good to have you on. Thanks. Thanks for having me on. Yeah, so I wanted to bring you on this week because 2025 is drawing to a close, obviously. It's been a huge year for the LNG industry, particularly in North America. I mean, we expected to get LNG Canada this year, we knew a few FIDs were likely, but I think things have kind of gone beyond expectations at this point. Just to recap here, we've had six US LNG projects reach FID. Another five or so are under construction. Eight are in operation, I think. Contracting has continued to be strong. The list just goes on. And we're now looking at more than 30 billion cubic feet a day of liquid liquefaction capacity by early in the next decade. So I think, you know, personally, there's there's various things driving this momentum. I mean, there's US contracting flexibility. The regulatory environment has been conducive to all this. Europe has played a big part. And generally, there's been a push to get projects across the finish line before costs bloom further with all this construction that's underway. So, Jason, with all that said, first question here, pretty simple one, do you think that the LNG market is getting too crowded in the United States? I mean, with all these projects advancing, do you think that we're likely to see project delays and other challenges ahead? Well, I mean, I think you're likely to see project delays almost no matter what happens. You know, these are these are really big, complicated projects with, you know, literally, you know, lots of many lots of moving parts. So I think it it almost goes without saying that some of these big projects will be delayed. I mean, you only have to look at Golden Pass, which I've lost track of how many years behind that project is. Yeah. So, so the thing is, you know, these kinds of things happen. You know, I don't think I mean, the things that you hear that might impact sort of sort of project progress, progressing in the US would be things like, you know, shortages of craft labor, possible impact of sort of tariffs on, you know, imports of finished goods of modules, things like that. I think most of those things can be solved with money, rather than than having to live with those sort of delays. So, you know, a few projects behind, you can throw money at it, you can hire more labor, it costs you a lot. But, you know, if the priority is getting done on time, you can do that. I mean, I do think the issue is that you've got so many projects, as you said, that went to FID this year, you got another few that could go to FID, you know, the rest of this year, or the first half of next year. And that's just an awful lot of LNG, coming into the market. So I mean, our count is over 200 million tons, including US and international, you know, coming into the market by, you know, 2030 ish. And we're in a 420 or so million ton market. So that's a 50% increase in the size of the supply. And, you know, there's some real questions about whether there's demand in that, in that same four or five years to soak up all that supply. Yeah, so we've, we've heard an awful lot about this wave of LNG that is coming to the market towards the end of the decade. So I guess another way to ask my question is, you know, if these project delays do emerge, then do you think that any potential glut might be staggered a bit? Or, you know, have we approached the point where supply is already kind of outstripping demand? I mean, where are we at in terms of all that? No, I mean, I think the short answer is that the market's still, I think, reasonably well balanced. So I mean, you still have, I mean, I was looking at the forward curves this morning, and you've still got above $10, I think until 2027, 2028, I think early 2028. So I don't think it goes below $9 until early 2028. So those are, those are pretty solid prices historically. And the US projects do quite well at those kinds of numbers. And the lifters of US volumes do pretty well. I think there's just some questions about whether those forward curves are sort of properly valued out that far. And people sort of explain the, you know, sort of the near term prices keep the curve elevated. So if you've got sort of $10 winter prices, that sort of lifts the whole forward curve. So I don't know, I don't know, I'm not sure why that is, but, but I mean, maybe that's how it works. But I mean, I think right now, the market sort of, you know, reasonably well balanced. I think the the European decision to back out Russian LNG, I think is giving people hope that that there'll be stronger demand out of out of Europe, although I think we're forecasting for the next 10 years, net growth of 20 million tons into Europe. So that's pretty healthy growth. Yeah. But and to your question about the delayed projects, I mean, I think, obviously, if you get some significant delays in US projects, then that gives the market some additional time to absorb the volumes as they come in. So delaying cutter delay in a significant project or two in the US, that means volume comes on later, that means the market has more time to absorb the supply that is coming on. So yeah, that sort of flattens out the potential of potential blood or over supply over the next four or five years. Yeah, and I guess I mean, that's kind of what's been happening here already, because, you know, like I said, we've been hearing a lot about the glut here for a couple years now, and it's sort of been getting pushed back. You know, I think a lot of people were thinking, you know, a few years ago that we'd start to see the impacts of all this supply, maybe in 2025, 2026. And maybe we are to a certain extent. I mean, like you said, JKM and TTF has been trading in a pretty narrow range of supplies have ramped up from these new plants. But if we reach that tipping point, you know, of more supply that glut, I mean, how long do you think that would last? How long would the glut last? I mean, that sort of seems to be the more pressing question to me is not not when it happens, but but how long, you know, it can last. I mean, the market is is kind of cyclical like that. But how long does that glut last? And what kind of an impact does it have on the market? Do you think we've done some forecasting and some scenarios? And I think our the sort of baseline sort of scenario, I think has some seasonal cancellations. So that's an indication of surplus, right, you can't sell it. So you cancel the US, some of your US volumes. For a couple of years, sort of 28, 29, 30, sort of in that timeframe. And that's sort of very much we're not sort of forecasting that but that's very much dependent on the degree to which you would see an increase in demand because you have low prices. So if prices go to, you know, $6, then the way to avoid a sort of surplus or cancellations would be for price sensitive markets, like Southeast Asia, South Asia, China, those countries sort of stepping up their demand because the price of supply has become much cheaper than it is today. So that's the sort of variable that you're looking at is the degree to which these these price sensitive markets. How how price sensitive are they? How how elastic is their demand? So if prices fall 50% to what degree do you see increases in demand? So I think that's the main thing we're looking at really. I think the projects being delayed, that's all, you know, that can help even things out as well. But to be honest, I mean, a lot of the experience in the US, in general, if you look recently, in the first wave, you saw some delays at Cameron and Freeport, I think we're both a bit late coming on. But what you've seen lately in the US is shaneer projects coming on time. You've seen venture global projects coming in early. So they've been more or less on schedule, a lot of them. So I don't think you can count on on a big wave of delays to sort of save the market. Get your hands on accurate and dependable natural gas price indexes and market insights from NGI's daily gas price index powered by intercontinental exchange data and direct submissions from market participants. NGI tracks more than 160 pricing index locations. With a subscription to our daily price service, you also get price and flow data from the Mexican natural gas market and global LNG market. Get a trial of NGI's daily gas price index at natgasintel.com/dgpi. That's natgasintel.com/dgpi. Yeah, that's a good point. You know, Plaquemines and Corpus Christie Stage 3, I think that those have come up and come online much faster than the market might have expected at the beginning of the year. Well, the VG projects in general have all come up early and you know, their sort of disputes with their customers aside, the volume from those projects has entered the markets, you know, earlier than forecasted. Yeah, that's having a big effect on the US gas market too. We just ran a story on that. I mean, Plaquemines is pulling in over three, three billion cubic feet a day of feed gas. So yeah, that's that's a good point, Jason. So I want to switch gears just a little bit here. I mean, like I said earlier, we've seen six FIDs this year. And I'm pretty sure that most of those projects have been financed with money on the balance sheet or largely through equity partners. I think it was actually potent that estimated over $60 billion has been raised for FIDs across the world this year, and most of those are in the United States. So my question is, do you think there's room out there for another entry anytime soon? I mean, there's quite a few projects that are technically close to FID, Texas LNG, Delphin, Commonwealth, Lake Charles. So I mean, can the market absorb those? And can they get the financing they need to cross the finish line at this point? Well, on the financing question, you know, we have not seen margins increase significantly. So the interest rate is sort of premium in charge. So we've got those have been about 250 basis points. And that's been fairly consistent for a while. Some have been higher, I think venture global paid more. But that was related to their their sort of debt ratios and their level of indebtedness, not really the appetite of the the banking community for LNG projects. So if the bankers were starting to think we're too exposed, then they would sort of ration capital by by raising the margins. And we haven't seen that happening yet. So the the most recent sort of financings have been, you know, it's never easy, but have been fairly smooth. I think from the point of view of the projects in the banks is that as long as you have credit worthy off takers, who are going to pay for the volume, whether they take it or not, then you kind of don't care what the market looks like, right? As long as long as the project's getting paid, then the the sort of impact on the market is really the problem of of the lifters. So I think that's where the potential issue is. I mean, you're right, that you got several projects, the first Delphin, Texas LNG, like Charles that have theoretically sold the volume they need to sell to get to FID. And so, you know, the question is, can they sort of pull all the different things that you have to do to really get to financial close? Can they can they get that done? But I don't see like a limit being imposed from the banks. I think if there is a limit there, it's really just the willingness of buyers to commit to say like, yeah, we will do this, we'll sign a 20 year contract, we'll convert an HOA to an SBA. I think one of the things that might be driving people to continue to buy supply is that if you look beyond those projects that you mentioned, there are very few US projects that are really anywhere near going to FID after that, you know, last little tale that you talked about. If you start looking in North America, like who else is fairly close to FID, there's almost nobody. Even the expansion projects either don't have permits, there's a couple hundred million tons of projects that don't have permits. And the remaining projects that have permits, you know, CP2, a second Delphin, Alaska, none of those companies have sold much in the way of volume. And so they may have their permits, but they don't have the customers lined up. So you're looking at an extended period while those kind of projects line up customers and get their houses in order before you can see, you know, another wave of construction. So I think the companies that haven't made decisions yet that haven't signed contracts, but that might need volume, they're sort of being pushed to those remaining projects that are close. So I think that's a bit of a dynamic that we're seeing. Yeah, so maybe a while before the next wave, which would make sense with all the growth we've seen here in the last couple of years, maybe just a follow up to that question then, but do you think there's, you know, maybe a point when some of these projects that are close to FID have to get sanctioned? I mean, is there like a point next year, or 2027, maybe for somebody like Delphin, that they fall too far behind as the market gets flooded with gas or the regulatory environment shifts, costs get too high? I mean, I don't know how much thought you've given to that. But is there a time when these guys have to cross the finish line before the market kind of shifts? I mean, yes, I think there kind of is. I mean, in some cases, some of their SPAs or HOAs, you know, expire after a period of time. So they so so the clock is sort of always ticking. I think the other thing is particularly with projects that don't have a lot of equity behind them are a big balance sheet. They depend on on kind of momentum. So, you know, you sign all your contracts, you go to the banks, you get the financing in place, and you go to FID. And if you if you can't sort of keep that momentum going, then then yeah, you can sort of fall behind, people start to think, Oh, look, look how cheap prices are, you know, do I really need this? Or, you know, I mean, and you can see that, I mean, the Europeans, some of the Europeans, the Germans in particular have signed a lot of long term contracts. But you have a lot of companies in Europe who haven't. And, you know, their sort of calculation is, why, why do I have to commit, you know, I'm uncertain about decarbonization, what the rules are going to look like, I'm not 100% sure in Russian supply. So, and there's an awful lot of volume coming out. So really don't have to decide right now. So I think there there's sort of two camps of the people who are like, Oh, everybody's already gone to FID, and I better get my house in order. And then there's the people particularly in Europe who are kind of like, there's not that much risk and kind of waiting to see what happens, given how much volume is under construction and under development. Yeah, yeah, lots of lots of consider there. I think I want to I want to pivot here one last time. I think maybe the last element of our conversation today, particularly, you know, as we kind of look ahead and think about what comes next with all this growth is prices. You know, at this point, even though most projections don't show a lot of change to US gas prices in the coming decade with all this LNG growth, kind of have to wonder at what point are we exporting too much LNG. So I mean, what kind of impact do you think this is likely to have on prices, Jason? I mean, do you think they'll rise significantly? And I know that you and I have talked about this before, but what kind of increases do you think off takers are prepared for as well? Well, I mean, it's kind of interesting, right? You've already seen recently sort of US gas prices, Henry Hobbit, sort of 450. So I mean, you've seen sort of higher, I guess, than than normal gas prices recently. And that's got to be a function of a bunch of things, but partly just rising demand. And I think, you know, you're looking at, as you said, I think at the top 30 BCF of demand, if once once the sort of projects under construction are completed, so by 2030. So that's that's what the better part of another 15 BCF, you know, added on top of what we're exporting or 17, adding on top of what we're exporting now. So another sort of 12 13 BCF. And then you've got data centers, you know, a whole nother, a whole other podcast. And so, you know, for the first time in a long time, you know, you've got power demand rising very quickly in the US. So my expectation, I think is that that will put pressure on prices probably, you know, seasonally, I mean, there's a lot of gas in the US. But I don't know that there's a lot of, you know, $253 gas in the US. And that, you know, over time, that sort of relentless export of LNG, the rising domestic demand has got to have an impact on price, just because of the infrastructure requirements, and, and, you know, all the other costs that go into producing gas. So my, my inclination is to think that that you will see gradually rising prices over the next, you know, decade or so. If you're talking about what the pain point for people is for foreign customers for American LNG, I mean, $5 Henry hub, you add sort of a 250 liquefaction fee, you know, 115% of Henry hub, that's what 575 plus 250. That's eight in change. And then a couple of bucks, $1.50 say to get Asia, you're, you're looking at, you know, $9 $10 on a delivery basis into Asia. And that's not crazy expensive. But that is, that's higher than I think a lot of Asia pack buyers have been expecting. When you know, I think sort of eight, I mean, remember when when Salurian was offering guaranteed $8 delivered to Asia LNG, and they didn't sell a ton, nobody bought that because they thought it was too expensive. So at five bucks, then I think you start to, to reach some concerns about on a consistent basis, you start to get concerned about how competitive the US can be at those kinds of levels. So I think if you can keep it sort of 350 450, then I think that's a good solid level that that a lot of countries can, you can grow the market with those kinds of numbers. Right. If all this LNG growth drives measurable growth on the ENP side, then you very well could see those numbers for a while. But I've kind of heard that $5 pain point myself. So that'll make sense. Okay, I think that does it for today. Thanks, Jason. And thanks all of you for listening to NGI's hub and flow podcast. Trusted provider of natural gas news data and pricing. 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