Three liquefied natural gas (LNG) projects progressed to the construction phase in 2023, following the execution of sale and purchase agreements (SPAs), which outline the terms and conditions of LNG supplies between sellers and buyers. According to data from the U.S. Department of Energy (DOE) and company websites, developers inked contracts with buyers for nearly 22 million tons per year (tpy) of LNG last year, equivalent to approximately 3 billion cubic feet per day (ft3/d) of natural gas. Notably, the contracted volumes in 2023 amounted to a 52% decrease compared to those in SPAs signed in 2022.
The final investment decisions (FID) for these projects were made before the DOE halted the review of LNG export permits to countries lacking a free trade agreement with the United States. Importantly, all projects that reached FID in 2023 had already secured export approvals from the DOE.
Venture Global initiated the construction of Phase 2 of the Plaquemines export facility in Louisiana. Meanwhile, Sempra commenced construction on the first phase of its Port Arthur project in Texas, and NextDecade began construction on the initial phase of the Rio Grande project. These projects under construction are anticipated to come online between the third quarter of 2024 and 2027.
Among the nine projects that signed SPAs in 2023, three are proposed projects, and two have obtained regulatory approvals. Despite having export approvals from the DOE, the approved projects, which collectively would contribute approximately 3.8 billion ft3/d of U.S. LNG export capacity, are still under consideration by the respective companies and have not yet reached FID.
The terms outlined in the SPAs signed last year align with many long-term U.S. LNG export agreements. Roughly three-quarters of the volumes in the 2023 SPAs had a contract duration of 20 years, commencing upon the project’s commencement of commercial operations, with the earliest possible start date being the third quarter of 2024. Additionally, approximately 94% of the volumes in the SPAs were sold on a free-on-board (FOB) basis, where the buyer assumes ownership of the LNG at the loading terminal and pays for the product at that delivery point. Notably, over half of the 2023 SPAs are indexed to the U.S. benchmark Henry Hub natural gas price, a shift from about two-thirds of the SPAs signed in 2022. The remaining 2023 SPAs utilize different pricing mechanisms, such as indexing to an oil benchmark price or another natural gas benchmark price.
The contracted LNG volumes in 2023 are relatively evenly distributed between offtake companies in Europe and Asia, hinting at the probable destinations for these cargoes. However, it’s important to note that most SPAs offer destination flexibility, allowing the buyer to deliver LNG to any destination as long as it complies with DOE export authorizations and U.S. law.