Decisions by Qatar, U.S. Dim Prospects for Jordan Cove LNG Export Terminal
On February 8, two nails were driven into the coffin of Pembina Pipeline Corporation's (NYSE:PBA) (Calgary, Alberta) proposed $8 billion Jordan Cove liquefied natural gas (LNG) project in Oregon. It is not yet clear if those nails will seal the fate of the controversial LNG export project.
The first of those metaphorical nails was the decision by Qatar Petroleum (QP) (Doha, Qatar), the world's largest LNG company, to dramatically increase its export capacity, from its current capacity of 77 million tons per year (TPY) to 110 million TPY in 2026 and 126 million TPY in 2027.
At a cost of about $28.7 billion, the QP expansion would be the largest in the history of LNG, according to Wood Mackenzie (Edinburgh, Scotland). The consulting firm estimated that the long-term, break-even cost to export LNG from Qatar is among the lowest in the world - about $4 per million British thermal units (MMBtu).
The expansions, tagged North Field East and North Field South, signal a dramatic escalation in the global fight for LNG market share. Each of the six LNG trains to be added to Qatar's existing export complex would have the ability to process 8 million TPY of LNG.
In the coming months, QP is expected to field offers from other oil companies for a stake in the expansion projects. The world's largest oil companies, including Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), Royal Dutch Shell Plc (NYSE:RDS.A) (The Hague, Netherlands), Total S.E. (NYSE:TOT) (Paris, France) and ConocoPhillips (NYSE:COP) (Houston, Texas) have partnered with QP on other LNG projects.
"Qatar is pursuing market share," Wood Mackenzie research director Giles Farrer told Reuters. "This FID (final investment decision) is likely to put pressure on other pre-FID LNG suppliers, who may find Qatar has secured a foot hold in new markets."
After adding 22.1 million TPY in capacity last year, U.S. LNG export capacity is approximately 69.8 million TPY, which makes it the nation with the third-largest amount of export capacity, behind Australia and Qatar but ahead of Russia and Malaysia, according to Shane Mullins, Industrial Info's vice president of product development for energy markets.
Currently, the U.S. has more than 460 million TPY of LNG export capacity under development, valued at $251 billion. This year will be a make-it-or-break-it period for many of these projects. While construction is currently scheduled to start on about $75 billion of projects by late 2022, Mullins estimated, he said he expects only a few will receive final investment decisions (FID), and the rest will be delayed or cancelled.
Although the long-term outlook for LNG exports is strong, volatility and lower prices for LNG in Asia have given several developers pause before financially committing to a project. The Jordan Cove project is rated at a "low" probability of getting constructed, according to Industrial Info's qualitative ranking.
"Jordan Cove was never in the top-tier of proposed LNG projects, largely because of where it was sited - at the center of the 'keep it in the ground' movement," Mullins said. "If Qatar's decision to expand its LNG export business isn't the final nail in Jordan Cove's coffin, it is one of the last of them."
Under development for nearly a decade, the project was initially planned to begin operating in mid-2017. "To date, IIR has not been able to include Jordan Cove as part of the next wave of likely FID approvals in the U.S., due to a lack of permitting progress," Mullins said.
For more on the outlook for U.S. LNG export terminals, see October 23, 2020, article - Economists Say, "In the Long Run, We're All Dead." Does That Grim Outlook Apply to Proposed LNG Terminals in the U.S.?
Aside from Qatar's decision to expand its LNG export capacity, the proposed Jordan Cove LNG export terminal got another piece of bad news on February 8, when the U.S. Department of Commerce (DOC) sided with an Oregon state agency in a ruling against the project, which would be able to export about 8 million TPY of LNG, if it is built.
The DOC agreed with the Oregon Department of Land Conservation and Development (DLCD) in opposing the construction and operation of the LNG export terminal and the associated 229-mile natural gas pipeline and compressor station. The DOC upheld the state's determination that the proposed project "was not supported by adequate information and was inconsistent with state enforceable policies because of adverse effects to Oregon's scenic and aesthetic resources, endangered and threatened species, critical habitats and ecosystems, fisheries resources, commercial and recreational fishing and boating, commercial shipping and transportation, and cultural resources."
In its February 8 decision, the DOC continued, "In reviewing the completeness and scientific quality of the information in the decision record and the likelihood and potential severity of coastal effects, (it) finds that the likelihood of adverse effects to cultural and historic tribal resources is high and the risk posed by those effects is potentially substantial." The agency also found "the record is insufficient to assess cumulative adverse coastal effects from the Channel Modification, especially with respect to Endangered Species Act-listed species and critical habitat, Essential Fish Habitat and water quality."
The DOC said the record in the case "is insufficient to adequately assess the potential nature and extent of crucial adverse coastal effects likely to be caused by the Project. As a result of these record deficiencies, the national interest furthered by this Project cannot be balanced against its adverse coastal effects, a necessary element."
The developer did not return emails requesting comment.
Opponents, however, were more than happy to comment on the DOC decision. "This is a good step," Don Gentry, chairman of the Klamath Tribes in southern Oregon, told E&E News. "We were really concerned about the pipeline coming through and disturbing cultural resources, spiritual sites and human remains."
E&E News quoted another source opposed to the project, Rick Eichstaedt, an attorney for the Confederated Tribes of Coos, Lower Umpqua and Siuslaw Indians, "This is the most difficult for them to overcome because if you look at Oregon's original decision, it essentially found there aren't just procedural shortcomings, this project is significantly out of line with Oregon's requirements under its Coastal Zone Management Act." He said the DOC decision makes it unlikely the project can move forward.
The project has had a checkered history with regulatory agencies. The Federal Energy Regulatory Commission (FERC) initially refused to permit the facility in 2016, then approved it, but then reversed itself last month. For more on that, see January 25, 2021, article - Jordan Cove LNG Delayed Again, an Industrial Info Market Brief. Before Oregon's DLCD rejected the project, the state's Department of Environmental Quality denied it a permit.
The Trump administration had been trying to expedite permitting of the Jordan Cove project under Executive Order 13927, issued June 4, 2020, but time ran out on the administration. Time will tell whether the project somehow survives.