Two Years Until US LNG Export Increases // NERC: Large Parts Of US In Winter Blackout Danger // IEA: Russian Oil Production to Nosedive

Two Years Until US LNG Export Increases

Europe sanctioned Russian energy after it invaded Ukraine. The continent has struggled to replace Russian gas flows since. American LNG has made up some of the difference, but Europe's still a ways away from full replacement. Global markets, too. It'll be another two years until the US adds to its seven LNG export terminals. Three new projects in Louisiana and and Texas, demanding more than $30 billion in financing all told, are under construction.

"Two of the projects, Golden Pass LNG near Port Arthur, Texas, and the first phase of Plaquemines LNG, along the Mississippi River about 25 miles south of New Orleans, are expected to begin production in 2024, setting up a race to see which will be the eighth US export terminal," reports Bloomberg. "The third project, by Cheniere Energy, the US’s largest LNG exporter, will expand an existing plant in Corpus Christi and won’t begin production until late 2025."

The industry and the market will be watching the horse race to see if any of these projects get delayed. Hydrocarbons are inelastic when it comes to demand and sticky when it comes to consumption. Imbalances in supply and demand can have profound implications. Project delays can create imbalance. And imbalance means volatility. So, who's ahead?

"Using regulatory filings and satellite images, Michael Webber, co-founder and managing partner of New York consulting firm Webber Research, said the race is a 'dead heat' but that Venture Global’s construction approach gives it an edge," reports Bloomberg. "It’s using a modular process in which sections of the plant are built offsite and shipped to Plaquemines, where they are dropped into place, akin to snapping Lego blocks together. Golden Pass, on the other hand, is using the traditional approach by building everything onsite."

NERC: Large Parts Of US In Winter Blackout Danger

The North American Electric Reliability Corp. (NERC) has more grim news for Americans. Over the summer, the organization warned that a vast swath of the American grid teetered towards blackouts. This winter, NERC fears more of the same.

NERC's winter report looks at how ready we are for extreme winter conditions. “It’s a sobering assessment … a large portion of North America is at risk of insufficient supplies during the extreme winter scenarios,” Fritz Hirst, NERC director of legislative and regulatory affairs, said at the National Association of Regulatory Utility Commissioners’ annual meeting in New Orleans.

The Electricity Reliability Council of Texas, the Midcontinent Independent System Operator, and ISO New England share elevated vulnerability to extreme weather that threatens reliability. New England sits in a particularly rough spot: its storage tanks at oil-fired power plants are down 14% from last winter (from 54% to 40%).

"The Southeast has lost 500 MW of generating capacity while demand has increased compared to a year ago," reports Utility Dive. "Power plants in the region have lower-than-normal coal stockpiles."

But it's not all bad news: the forecast for the winter expects a mild season. Plus, capacity additions in the Southwestern Power Pool and the Pacific Northwest region have downgraded their risk status. Still, extreme doesn't mean rare.

IEA: Russian Oil Production to Nosedive

What will happen to Russian oil once the European import ban kicks in? According to the International Energy Agency, the fight to find new markets may push Russia's average output below 10 million barrels per day.

So far, Russia has rerouted over 1 million bpd to India, China, and Turkey after its European customers turned away following the country's invasion of Ukraine. But those flows have leveled, which the IEA believes means Russia might not be capable of increasing imports much further.

The IEA predicts Russia may lose about 2 million bpd of its output by the close of March (compared to prewar levels) and see its average production tumble to 9.6 million bpd next year.

"Russia’s production in January through October averaged about 10.7 million barrels a day," reports Bloomberg. "The European Union is set to ban imports of most Russian crude on Dec. 5 and refined products from Feb. 5. The move will not only create production risks for Russia, but exacerbate a supply headache for the region as alternative fuel sources may not be enough to fill the gap. The bloc will also prohibit EU-flagged tankers from shipping Russian cargoes and ban the provision of maritime services, including insurance, to third-party vessels involved in the trade. That may further hamper the redirection of Russian crude flows away from Europe."

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Conversation Starters

1. Texas is about to get a $8.5 billion polymers facility. "Chevron Phillips Chemical and QatarEnergy on Wednesday said they have reached a final investment decision to build an $8.5 billion polymers facility in Orange, Texas," reports Reuters. "The agreement is part of a larger move by oil companies preparing for a future in which oil is used less to produce energy but still indispensable for making non‐energy goods such as plastics, a type of polymer. The facility is expected to be operational in 2026. It will make polyethylene, the most common plastic, for production of goods from coolers, to water or gas pipes and packaging."

2. Germany's building its first floating LNG terminal. "On Tuesday, Olaf Lies, the economy minister of the German state of Lower Saxony, toured the port of Wilhelmshaven. After six months, construction of the infrastructure to support an inbound floating LNG terminal (FSRU) – a pier, pipelines, and electricity lines – was completed," reports Euractiv. “Germany is looking to Wilhelmshaven today. The new LNG terminal is a big step towards a secure energy supply,” said Lies.

3. An oil tanker was hit by a projectile in the Gulf of Oman. "Eastern Pacific Shipping, a Singapore-based firm ultimately owned by Israeli billionaire Idan Ofer,saidin a media statement that the tanker, Pacific Zircon, was hit by a projectile approximately 150 miles off the coast of Oman on the afternoon of November 1," reports Oilprice.com. “We are in communication with the vessel and there is no reports of injuries or pollution. All crew are safe and accounted for,” said Eastern Pacific Shipping.

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