LNG lift-off | Financial Times

Welcome back to another Energy Source.

All eyes in financial markets are on the current banking crisis in the US, but so far the energy impact appears limited. Oil prices sold off hard on Monday morning after a weekend of spooky headlines triggered fears of wider economic fallout and prompted traders to dump risky commodities. Brent recovered a bit but still settled down 2.4 per cent at $80.88 a barrel.

Aside from Data Drill, where Amanda looks at the effect on solar companies’ share prices from the collapse of a bank that lent money to clean tech developers, the newsletter today remains focused on energy.

And yesterday brought big news. Venture Global LNG announced it had taken a final decision to go ahead with the second phase of a huge liquefied natural gas export project in Louisiana. That’s the subject of our first note. Our second is on 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 that to me in Houston last week, when she otherwise sent an olive branch to EU politicians still fuming about the Inflation Reduction Act. Some extra comments from the secretary infuse both our notes today.

Thanks for reading. (Derek Brower)

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US LNG exports prepare for lift-off

The race to expand America’s liquefied natural gas exports after Russia’s full-scale invasion of Ukraine is picking up pace.

LNG developer Venture Global yesterday committed to a big expansion of its Plaquemines export facility, which is under construction on the US Gulf Coast. The total cost of the facility is now expected to be $21bn and have the capacity to turn about 2.6bn cubic feet a day, or 2.5 per cent of the country’s gas output, into 20mn tonnes a year of LNG for exports.

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

What does it tell us about the state of America’s LNG business?

Get ready for big growth

US LNG output is on track for a massive expansion in the coming years, giving America more weight to throw around in the global energy trade.

Approval for the expansion of Plaquemines puts total US LNG export capacity on pace to surpass 20bn cf/d over the next couple of years with the projects that have committed to construction. They will make the US the world’s largest LNG exporter by far.

Line chart of Liquefaction capacity, million tonnes per year showing The US will become the world's largest LNG exporter this year

The federal government has made clear it is not deterring new projects. It is even working with industry to certify gas as clean — a way to deal with its “issues” around methane and CO₂, , energy secretary Jennifer Granholm told us last week. That could open up export markets further.

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

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

A handful of players will dominate American LNG

Established LNG players are having more success in the post-Russia invasion landscape than upstarts. The other big projects under construction are being developed by big players like ExxonMobil and Cheniere Energy, which recently said it wants to undertake an expansion at its Sabine Pass plant in Louisiana, already the US’s largest.

Start-up ventures such as Charif Souki’s Tellurian, meanwhile, are having trouble getting off the ground.

Why? The economics of expanding an existing site are better than building new projects. Also, buyers and lenders are flocking to companies with proven records in a costly and high-risk business (see Freeport LNG’s recent extended outage after an explosion at its flagship plant.)

Billions are still on the table for LNG projects

The approval for the expansion of Plaquemines proves that funding is available for big LNG plants, including from financial institutions with net zero commitments, despite concerns about long-term demand for fossil fuels.

Venture Global said it raised $7.8bn 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)

Willow approval: climate betrayal or wartime pragmatism?

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

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 said was a pragmatic decision that bolsters US energy security.

Willow has become a flashpoint for debates in the US about energy and climate policy — but the project doesn’t really warrant all the furore.

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

At its peak, ConocoPhillips says Willow will pump 180,000 barrels a day of oil — about 1.5 per cent of current US output. Nationally, production is set to grow by more than double that this year alone.

It’s also smaller than Conoco wanted. The interior department was at pains to emphasise that it had “significantly reduced” the scope of the project — granting Conoco permission for just three of the five drilling pads it had sought.

That said, the project will pump oil — and emissions — for decades during a period in which the US must otherwise be rapidly reducing its carbon pollution to meet its commitments to the Paris climate accord. The non-profit Earthjustice estimates the project will spew more than 260mn tonnes of greenhouse gases over 30 years, equivalent to a year’s worth of emissions from 70 coal-fired plants.

On that basis, the outpouring of anger was understandable.

Jeff Ordower of 350.org said the decision “betrays [Joe] Biden’s own climate promises”. The environmental organisation’s Bill McKibben called it “a savage mistake by the Biden administration, which hopes for a small political boost”.

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

Zooming out, America wants more oil and President Biden says demand will be around “for some time”. As Granholm put it last week:

“It doesn’t have to binary. You can make sure you have security of supply today, while you are pushing on clean energy production for tomorrow.”

“We’re in the middle of a war. And there’s enormous volatility. Right now, it’s important to provide the supply that will decrease that volatility. Next year, at this time, we may be having a different conversation,” she said.

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

“Notwithstanding howls from environmentalists,” said analysts at ClearView Energy Partners, “the greenlighting of Willow would appear to suggest the administration has not yet abandoned its wartime fossil fuel pragmatism”. (Myles McCormick and Derek Brower)

Data Drill

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

SVB was a prominent supporter of cleantech, with more than 1,500 clients in climate technology and sustainability and $3.2bn invested in project financing, according to the bank. The bank’s collapse comes as venture capital floods into a cleantech sector poised for growth on the back of tax credits in the Inflation Reduction Act.

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

Sunnova said its exposure was “immaterial” and that it did not hold cash deposits or securities with the bank.

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

“SVB was a trusted partner for climate tech companies and infrastructure projects,” said Kiran Bhatraju, chief executive of Arcadia, a community solar start-up, adding it had moved most of its funds from SVB. While Bhatraju said he expected other companies to fill the industry’s new financing gap, “pipelines will be in flux for some time”.

Overall, confidence in the cleantech sector remains high.

“There’s more people trying to place money than having places to put it,” said Aaron Halimi, chief executive of Renewable Properties, a solar start-up based in San Francisco. (Amanda Chu)

Line chart of Change in share price (%) showing Shares of cleantech stocks slipped upon news of exposure to Silicon Valley Bank

Power Points

  • Volkswagen picks Canada for a new battery plant to tap into US subsidies after putting plans for Europe on hold.

  • Brussels’ industrial plan to counter the US climate law has kicked off an ideological battle.

  • Morocco’s economy must adapt to meet the growing threat of climate change, its finance minister warns.

  • Opinion: The US and its allies will need to make hard choices to secure sufficient supply of rare earths.

Energy Source is written and edited by Derek Brower, Myles McCormick, Justin Jacobs, Amanda Chu and Emily Goldberg. Reach us at energy.source@ft.com and follow us on Twitter at @FTEnergy. Catch up on past editions of the newsletter here.

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