LNG construction boom in US tied to China purchases
Liquefied natural gas plant investment in the U.S. is making a comeback. Resources exploration companies have until recently held off on spending, ever since oil prices collapsed starting in 2014.The new construction in Texas is at the Port of Corpus Christi which has access to shale gas production from the Eagle Ford and Permian Basin formation. Those fields are producing an excess of gas in order to extract shale oil.
But things are looking up. U.S. LNG producer Cheniere Energy has decided to construct a new plant in that country, the first such project in two years. Rising LNG imports to China are providing a tailwind for plant construction companies, which have been under pressure to land new orders.
On May 22, Cheniere announced that, in addition to two LNG plants under construction in Texas, it would expand the project by building a third plant. Planning, procurement and construction will be handled by U.S. engineering company Bechtel. The plant is slated to come online in 2021, with annual production capacity of 4.5 million tons. It is the first new LNG project construction in the U.S. in about two years, since Japan's IHI issued construction orders for its facility in the state of Georgia in 2016.
All of this is happening against the background of rising exports to China. In February, Cheniere entered into a 25-year, long-term sales contract with China National Petroleum. With the prospect of a new LNG customer prompting fresh capital expenditure, the plan is for an annual 1.2 million tons of LNG to be exported from the newly expanded plant.
The Chinese government has launched a policy to switch from coal to natural gas in electricity production facilities and factories. In 2017, it became the world's second-biggest importer of LNG, overtaking South Korea. Concerns are rising over a potential undersupply in 2022 as demand surges from emerging economies, triggering a strengthening of LNG plant investment.
It is also providing a tailwind for Japanese industry. "The LNG market is recovering faster than we expected. We have our eye on construction orders for large-scale projects in the U.S. and Africa," said Masaji Santo, CEO of Japanese engineering company Chiyoda, at the release of the company's financial results in May.