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Lifting LNG | Financial Times

by SuperiorInvest

Welcome back to another power source.

All eyes in the financial markets are on the current banking crisis in the US, but the energy impact appears to be limited so far. Oil prices sold off hard on Monday morning after a weekend of scary headlines that raised concerns about the broader economic fallout and prompted traders to unload risky commodities. Brent recovered a bit but still settled down 2.4 percent at $80.88 a barrel.

In addition to Data Drill, where Amanda looks at the impact of the collapse of a bank that lent money to cleantech developers on solar company share prices, today’s newsletter focuses on energy.

And yesterday brought big news. Venture Global LNG announced that it has made a final decision to proceed with the second phase of a massive liquefied natural gas export project in Louisiana. This is the subject of our first remark. Our second is about the Biden administration’s decision to greenlight the Willow oil project in Alaska.

That’s no surprise. The government wants fossil fuel producers to drill more wells and pump more oil—at least for now. US Energy Secretary Jennifer Granholm reiterated this to me last week in Houston when she sent a different message olive branch to EU politicians who are still fuming over the Inflation Act. Some other notes from the secretary round out our notes today.

Thank you for reading. (Derek Brower)

This article is a version of our Energy Source newsletter. Register here to receive the newsletter every Tuesday and Thursday directly to your email inbox

US LNG exports are poised for a recovery

The race to expand US exports of liquefied natural gas is gathering pace after Russia’s all-out invasion of Ukraine.

LNG developer Venture Global yesterday committed to a major expansion of its Plaquemines export facility under construction on the US Gulf Coast. The total cost of the facility is now expected to be $21 billion and it will have the capacity to turn about 2.6 billion cubic feet per day, or 2.5 percent of natural gas, into 20 million tons of LNG per year for export.

Once online, it will be among the largest LNG export plants in the world.

What does it tell us about the state of the US LNG business?

Get ready for big growth

U.S. LNG production is on track for massive expansion in the coming years, giving America more weight in the global energy trade.

Approval of the Plaquemines expansion brings total U.S. LNG export capacity to more than 20 billion cf/ds of projects committed to construction over the next few years. They will make the US by far the world’s largest exporter of LNG.

The federal government has made it clear that it is not discouraging new projects. It is even working with industry to certify the gas as clean – a way to deal with its “issues” around methane and CO₂, Energy Secretary Jennifer Granholm said last week. This could further open export markets.

“It’s a free market and we’re not going to stand in the way,” Granholm told Energy Source in an exclusive interview, noting the “enormous” amount of export capacity under construction.

“The good thing is that we’re expanding our ability to help with energy security,” Granholm said.

A handful of players will dominate US LNG

Established LNG players have more success than newcomers in the post-Russian invasion environment. Other major projects under construction are being developed by major players such as ExxonMobil and Cheniere Energy, which recently said they want make an expansion at its Sabine Pass plant in Louisiana, already the largest in the US.

Start-ups like Charif Souki’s Tellurian, meanwhile, have trouble getting off the ground.

Why? The economics of expanding an existing site is better than building new projects. Buyers and lenders are also flocking to companies with proven track records in high-cost, high-risk business (see recent Freeport LNG news extended blackout after the explosion in its flagship race.)

Billions are still on the table for LNG projects

Approval of the Plaquemines expansion demonstrates that financing is available for large LNG plants, including net-zero financial institutions, despite concerns about long-term demand for fossil fuels.

Venture Global said it raised $7.8 billion for the Plaquemines expansion from a wide range of lenders including Goldman Sachs, Bank of China, JPMorgan Chase, MUFG and Natixis. (Justin Jacobs and Derek Brower)

The Willow Endorsement: Climate Betrayal or Wartime Pragmatism?

The Biden administration gave yesterday green light to ConocoPhillips’ Willow project on the North Slope of Alaska.

Environmental groups were furious, saying the move would lock in fresh carbon emissions for decades. The oil industry, some local indigenous groups and Alaskan politicians praised what they say is a pragmatic decision that strengthens U.S. energy security.

Willow has become a hotbed of energy and climate policy debate in the US – but the project doesn’t really warrant that much buzz.

Yes, it’s a big project, but not “massive,” to use the description of some activists.

At its peak, ConocoPhillips says Willow will pump 180,000 barrels of oil a day — about 1.5 percent of current U.S. production. At the national level, production is expected to more than double this year alone.

It’s also smaller than Conoco wanted. The Interior Department was at pains to emphasize that it had “significantly reduced” the scope of the project — granting Conoco permits for only three of the five drilling pads it sought.

That means the project will pump oil — and emissions — for decades during a period in which the U.S. must otherwise rapidly reduce its carbon pollution to meet its commitments to the Paris climate accord. The non-profit organization Earthjustice estimates that the project will spew more than 260 million tons of greenhouse gases over 30 years, equivalent to the annual emissions of 70 coal-fired power plants.

Based on that, the outpouring of anger was understandable.

Jeff Ordower of 350.org said the decision was “revealing [Joe] Biden’s own climate promises”. Bill McKibben of the environmental organization called it “a cruel mistake by the Biden administration, which is hoping for a little political support”.

But politics is tricky. While some local indigenous groups opposed the project, many supported it. Willow will help ensure that “the 10,000 years of history of our Native Alaska Native communities have a viable future,” the local Iñupiat community said in a statement.

America wants more oil, and President Biden says the demand will be there “for some time.” As Granholm said last week:

“It doesn’t have to be binary. You can make sure you have security of supply today while advancing clean energy generation tomorrow.”

“We are in the middle of a war. And there is huge volatility. Right now, it’s important to provide an offer that reduces that volatility. This time next year, we might have a different conversation,” she said.

The question then becomes: should the supplies come from the US or elsewhere?

“Despite the wails of environmentalists,” said analysts at ClearView Energy Partners, “greenlighting Willow would indicate that the administration has not yet abandoned its fossil fuel war pragmatism.” (Myles McCormick and Derek Brower)

Data drill

Cleantech groups breathed a sigh of relief on Sunday when the US government announced that all deposits at Silicon Valley Bank would be guaranteed.

SVB has been a prominent proponent of clean technology with more than 1,500 clients in climate technology and sustainability, and has invested $3.2 billion in project financing, according to the bank. The bank’s collapse comes as venture capital floods into a clean-tech sector poised for growth thanks to tax breaks in the Inflation Reduction Act.

Shares of Sunrun and Sunnova, two major solar companies, fell on Friday after news of their exposure to SVB. Mary Powell, Sunrun’s chief executive, said the company was “delighted” that the government would replace its less than $80 million in cash in SVB, adding that Sunrun had “longstanding banking relationships” and was confident in its ability to replace undrawn liabilities SVB. .

Sunnova said its exposure is “insignificant” and that it does not hold cash deposits or securities at the bank.

Community solar developers were rocked by SVB’s collapse. The bank has led or participated in nearly two-thirds of all community solar projects in the U.S. to date, according to the bank’s website.

“SVB has been a trusted partner for climate technology companies and infrastructure projects,” said Kiran Bhatraju, CEO of Arcadia, a community solar start-up, adding that it has shifted most of its funding away from SVB. While Bhatraju said he expects more companies to fill the industry’s new funding gap, “the pipelines will be moving for some time.”

Overall, confidence in the cleantech sector remains high.

“More people are trying to put money than they have somewhere to put it,” said Aaron Halimi, chief executive of Renewable Properties, a San Francisco-based solar start-up. (Amanda Chu)

Line chart of share price change (%) showing shares of cleantech stocks slipped on news of exposure to Silicon Valley Bank

Power Points

  • Volkswagen chooses Canada for a new battery factory to take advantage of US subsidies after plans for Europe were put on hold.

  • Industrial plan of Brussels against the US climate law unleashed an ideological battle.

  • The Moroccan economy must adapt a growing threat about climate change, warns its finance minister.

  • Opinion: The US and its allies will have to make hard choices ensure sufficient supplies of rare earths.

Source of Power was written and edited by Derek Brower, Myles McCormick, Justin Jacobs, Amanda Chu and Emily Goldberg. Contact us at energy.source@ft.com and follow us on Twitter at @FTEenergy. Follow past issues of the newsletter here.

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