Federal authorities had a busy Friday with a pair of orders that pushed further along the regulatory process two U.S. liquefied natural gas (LNG) facilities being proposed as part of a second wave of export projects.
FERC issued a positive draft environmental impact statement (DEIS) for Pembina Pipeline Corp.’s 1.04 Bcf/d Jordan Cove Energy Project and related 1.2 Bcf/d Pacific Connector Pipeline, a 232-mile, 36-inch diameter pipeline that would traverse southern Oregon and terminate at Jordan Cove.
In its order, the Federal Energy Regulatory Commission said approval of the project would result in some environmental impacts. However, most of the impacts would be less than significant because of the mitigation measures proposed by Jordan Cove and Pacific Connector and those recommended by staff in the DEIS.
FERC’s DEIS was more than a month delayed because of the 35-day partial government shutdown late last year. The Commission indicated a final EIS would be issued on Oct. 11, and a final order is expected by Jan. 9 [CP17-494, CP17-495].
If the project is sanctioned, Calgary-based Pembina executives have said that LNG tankers could arrive in 2024 at the Coos Bay, OR, terminal.
Separately, FERC issued a positive environmental assessment for Cheniere Energy Inc.’s Corpus Christi Stage 3 project, which would include expanding the liquefaction and storage capacity at the Texas coast facility as well as constructing and operating a new interstate pipeline and associated facilities in San Patricio County.
FERC staff concluded that approval of Stage 3, with appropriate mitigating measures, would not constitute a major federal action significantly affecting the quality of the human environment.
The project would include the addition of seven mid-scale liquefaction trains capable of producing up to 11.45 million metric tons/year; one 160,000 cubic meter LNG storage tank; 21 miles of 42-inch diameter pipeline; two natural gas compressor units at the existing Sinton Compressor Station, as well as meter and regulator stations, launcher and receiver facilities and mainline valves.
The first train at Corpus Christi started commercial operations earlier in March, and substantial completion at Train 2 is expected in the second half of this year after FERC approved the introduction of feed gas.
The federal approvals were handed down amid a backdrop of extremely weak global LNG prices, after a mild winter and early-season buying left storage inventories abroad at healthy levels. Asian benchmark Japan Korea Marker (JKM) had fallen to an unusual discount to the Title Transfer Facility (TTF) European benchmark, a trend likely to linger until summer demand ramps up.
“While May 2019 is the outlier with the JKM at a discount, the June ‘19 and July ‘19 spreads also fell below the level where we estimate the JKM-TTF spread needs to be to keep the netback for U.S. cargoes to Asia higher than to Europe,” Energy Aspects analysts said.
With 2Q2019 delivery contracts suggesting U.S. cargoes will go to Europe, the concern for Lower 48 producers is how low European prices will go and how low must they go before a TTF-Henry Hub arbitrage trade is uneconomic, according to Energy Aspects. Given the precipitous plunge in LNG freight rates, “the LNG market is not far from seeing the inaugural closing of the TTF-Henry Hub arb, though the TTF will need to fall to around $4.15 for that to happen.”
The question for the LNG market to ponder is what happens if supply growth available to the European market this summer exceeds estimates, the firm said. In the absence of greater easing in supply from pipelines than previously assumed, it would require LNG supply to be choked off, which would likely mean locking in U.S. supply.
“At what TTF price will LNG supply start to be choked off? In particular, given the comparatively flexible nature of U.S. LNG supply contracts, at what point does it stop being economic to export LNG from the United States?” analysts asked.
Leaving cargoes in the United States would likely have a bearish impact on Henry Hub prices, although it may depend on the length of time that arbitrage window is closed. “But it does raise the prospect of a global race to the bottom, with the TTF following Henry Hub down while the JKM is pressed into following TTF.”