Concerns are growing that several liquefied natural gas (LNG) development projects in North America have failed to break ground due to expense issues, which could disrupt plans for related Korean corporations. Energy and resource developers have lost a path to procure LNG at low prices, and shipbuilders and construction companies are also finding it harder to secure work. In particular, with LNG supply issues emerging due to the war between the United States and Iran, related corporations are increasingly anxious.
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 decisions (FID). Lake Charles LNG, Commonwealth LNG, and Delfin LNG in Louisiana, and Texas LNG in Texas fall into this category.
Saguaro Energia LNG, which exports U.S. natural gas using Mexican ports, and Ksi Lisims LNG in British Columbia, Canada, have also not begun development.
Typically, an LNG project proceeds in the order of business conception, permits, engineering, procurement and construction (EPC) contracts, buyer acquisition, and FID. FID is the stage where the final contract is signed after completing all processes, including risk review and financing. Full-scale development begins after FID, and it takes four to five years of construction until first gas production.
LNG development in North America is being delayed because various expenses, such as 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, raise funds 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 March 2022, jumped into the 5% range in July 2023, and has recently been in the 3% range. When market rates rise, PF suffers a triple whammy of increased borrowing expenses, stricter loan screening, and deteriorating business feasibility.
Korean corporations that planned to purchase LNG through local projects are anxious over the delays. SK Gas signed a large long-term purchase contract in 2022 with Energy Transfer, the developer of Lake Charles LNG.
The initial goal was to import 400,000 tons a year of LNG for 18 years starting this year. However, as the FID for Lake Charles LNG has been delayed for years due to soaring construction costs and permitting delays, the timeline for imports into Korea is being pushed back indefinitely.
The Sabine Pass LNG project in Louisiana is struggling to secure funding for its Phase 5 expansion. According to the industry, the U.S. government has reportedly asked Korea to participate in the construction of LNG export terminals in Louisiana. The government has said it is difficult to confirm specifics about particular projects.
POSCO International also signed a long-term contract in 2024 with Mexico Pacific, the operator of the Saguaro Energia LNG terminal in Mexico, to import 700,000 tons of LNG annually for 20 years. The initial goal was to complete FID procedures in 2024, but frequent management changes and environmental controversy have combined to prevent the signing of the final contract.
The Saguaro Energia LNG project brings U.S. natural gas by pipeline to Mexico's west coast, liquefies it, and exports it. Because LNG can be shipped directly to Asia without passing through the Panama Canal, logistics costs and transit times can be reduced. Before POSCO International, corporations in Singapore, China, and Malaysia also signed long-term purchase contracts.
A private power industry official said, "If development is delayed, it could disrupt plans to secure volumes." The official added, "Corporations often secure multiple supply sources rather than taking gas from a single place," and "we are preparing to avoid major disruptions even if North American LNG projects are delayed."
Korean 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 business conception stage and has also made an equity investment. It was selected as the preferred bidder for the EPC, but it is unclear when construction will begin. Texas LNG is a project to build an LNG production facility and storage tanks covering 445,154 square meters at the Port of Brownsville.
Samsung Heavy Industries, which had been selected as a partner for the U.S. Delfin LNG project, has also not signed the final contract as the FID process has been delayed. The Delfin LNG project will deploy up to three to four floating LNG production units (FLNG) offshore Louisiana to produce and export about 13.2 million tons of LNG annually.