Rising construction costs are likely to give brownfield liquefied natural gas (LNG) projects an extra advantage over greenfield sites as planned developments move toward sanction, Sempra CEO Jeff Martin said Thursday.
“Greenfield projects tend to have a little bit of a higher per-unit cost than brownfield projects, Martin said during the 2Q2021 earnings call. “This will continue to put pressure on that dichotomy.”
In June Sempra placed its greenfield Port Arthur, TX, LNG export project on the backburner, with a view to bring forward a final investment decision on its brownfield Cameron LNG expansion at the end of 2022. San Diego-based Sempra is also advancing plans for an expansion at its Energia Costa Azul (ECA) LNG project in Mexico, the initial phase of which was sanctioned last year.
Martin said the first phase at ECA LNG was progressing, with expectations to meet its target to bring the facility online in 2024. In addition, Sempra remains “quite bullish” on the proposed one-train Cameron expansion, he said.
“Port Arthur is probably a longer term opportunity, but we have more work to be done there,” he said.
Martin added that while increased costs due to inflation are likely to impact pre-FID projects, he expects ballooning global LNG demand to be a bigger factor in moving developments forward.
“Most people who are observing this industry think it will be the most dominant fuel used in the world by the early part of next decade,” he said. “And the only way that’s going to occur is, you’re going to see a massive build-out of continued LNG development, and the United States should expect to take its fair share.”
When asked about the economics of the one-train Cameron expansion versus Port Arthur, Martin said the company expects the Louisiana project to have “superior” returns. “That’s largely because at a high level, you can always expect the economics of brownfield projects to be generally superior to greenfield projects,” he said, adding that the key for Port Arthur would be to build it in phases at scale.
Sempra reported net earnings of $424 million ($1.37/share) compared with $2.239 billion ($7.61) in the prior year-quarter.
Tellurian Inc., which is pursuing the Driftwood LNG project in Louisiana, in its second quarter results said it is progressing toward construction. The company said recently it had secured enough offtake agreements to support the first phase of Driftwood early next year.
Tellurian plans to supply the LNG gas using Haynesville Shale production. Drilling resumed earlier this year as gas prices rose. The company said it generated about $5.6 million in revenues during 2Q2021 from gas sales.
The Houston-based company expects to exit 2021 with gross production of about 95 MMcf/d.
Tellurian’s production unit is “enhancing our natural gas drilling program and this integrated approach will create the physical hedge for Driftwood’s natural gas purchases for liquefaction and export,” CEO Octávio Simões said.
The company also has launched a $105 million public offering of common stock, potentially to pay for purchasing upstream assets.
Tellurian reported a quarterly net loss of $30.6 million, (minus 8 cents/share) for 2Q2021. By comparison, it logged a net loss in the same period a year ago of $128.8 million (minus 53 cents/share).
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