As several liquefied natural gas (LNG) development projects in North America fail to break ground due to expense issues, concerns are growing that Korea-based corporations tied to those projects will see their plans disrupted. Energy and resource developers have lost access to low-cost LNG, and shipbuilders and construction companies are also finding it harder to secure work. In particular, with LNG supply issues emerging amid the war between the United States and Iran, related corporations are increasingly on edge.
According to the energy industry on the 11th, at least seven LNG terminal projects in the United States and Canada are delaying their final investment decision (FID). These include Lake Charles LNG, Commonwealth LNG and Delfin LNG in Louisiana, and Texas LNG in Texas.
Saguaro Energía LNG, which exports U.S. natural gas via Mexican ports, and Ksi Lisims LNG in British Columbia, Canada, have also not begun development.
Typically, LNG projects proceed in the order of project conception; permits and approvals; engineering, procurement and construction (EPC) contracts; buyer securing; and FID. FID is the stage of signing the final contract after completing all processes, including risk review and financing. Full-scale development begins after FID and requires four to five years of construction to first gas.
LNG development in North America is being delayed because various expenses, including raw material prices and labor costs, are rising steeply. According to global energy consultancy Wood Mackenzie, wages for skilled workers in Texas and Louisiana, where large-scale LNG development is underway, have risen about 40% over the past three years, and total EPC expenses for LNG projects have increased by more than 50%.
Compared with when LNG business plans were drawn up years ago, higher interest burdens are also cited as a reason for delays. LNG projects, which require large amounts of capital, are financed through project financing (PF), borrowing a significant portion of total project costs from financial institutions.
The U.S. benchmark interest rate stayed in the 0% range until Mar. 2022, jumped into the 5% range in Jul. 2023, and has recently been in the 3% range. When market rates rise, PF faces a triple whammy of increased borrowing expenses, tighter loan screening and deteriorating business feasibility.
Korea-based corporations that planned to buy LNG through local projects are anxious over the delays. SK Gas signed a large-scale long-term purchase contract in 2022 with Energy Transfer, the developer of Lake Charles LNG.
The initial goal was to import 400,000 tons (t) of LNG annually for 18 years starting this year. However, with the FID for Lake Charles LNG delayed for years due to soaring construction costs and permitting delays, the timeline for domestic imports is being pushed back indefinitely.
In the case of the Sabine Pass LNG project in Louisiana, the fifth-phase expansion is struggling with financing. According to the industry, the U.S. government has asked Korea to participate in the construction of LNG export terminal projects in Louisiana. The government says it is difficult to confirm details about specific projects.
POSCO International also signed a 20-year long-term contract in 2024 with Mexico Pacific, the operator of the Saguaro Energía LNG terminal in Mexico, to import 700,000 t of LNG annually. Mexico Pacific, the project lead, initially sought to complete FID procedures in 2024, but frequent management changes and environmental damage controversies have prevented the signing of the final contract.
The Saguaro Energía LNG project brings U.S. natural gas via pipeline to Mexico's west coast, liquefies it and exports it. Because LNG can be shipped straight to Asia without passing through the Panama Canal, logistics costs and transit time can be reduced. Before POSCO International, corporations from Singapore, China and Malaysia also signed long-term purchase contracts.
A private power industry official said, "If development is delayed, it can disrupt volume-securement plans." The official added, "Corporations often secure multiple supply sources rather than taking gas from one place, and we are preparing so that even if North American LNG projects are delayed, there will be no major disruptions."
Korea's shipbuilding and construction industries are also being hit by delays in North American LNG development.
Samsung E&A has participated in the Texas LNG project since the initial concept stage and has also made an equity investment. Although it was selected as the preferred bidder for the EPC, it is unclear when construction will begin. Texas LNG is a project to build LNG production facilities and storage tanks on a 445,154-square-meter site at the Port of Brownsville.
Samsung Heavy Industries, which had been selected as a partner for the U.S. Delfin LNG project, has yet to sign the final contract as the FID process is delayed. The Delfin LNG project plans to deploy up to three or four floating LNG production units (FLNG) offshore Louisiana to produce and export about 13.2 million t of LNG annually.