North American LNG sees costs overruns and delays

Cost increases and delays have hit several North American LNG projects at a moment when the market outlook is beginning to sour.

Up until recently, the momentum behind the U.S. LNG building boom appeared strong, continuing to propel projects forward. In September, NextDecade announced a final investment decision for Train 4 of Rio Grande LNG and Sempra gave a greenlight for Phase 2 of its Port Arthur LNG project. A few weeks earlier, Venture Global announced FID on its CP2 LNG project in southwest Louisiana.

At the Gastech conference in Milan in September, the slew of deals appeared to be proof that the industry was still enjoying intense investor interest.

But a growing number of industry leaders see investment in LNG supply going way too far, financing projects that will deepen a global glut that has already begun to take shape. One executive even accused the industry of “irrational exuberance” and alluded to past financial bubbles.

Meanwhile, as the battle of narratives begins to shift, projects underway are suffering setbacks.

In August, Woodfibre LNG revealed a massive cost increase to its project in British Columbia. The project under construction on Canada’s Pacific Coast said its costs shot up to US$8.8 billion, up from US$5.1 billion previously. When the project was initially proposed in 2015, it was estimated to cost only US$1.2 billion. Woodfibre cited the high costs of remediating a brownfield site, barge-only logistics, housing for workers, and environmental monitoring as key drivers of the project’s ballooning costs.

Gas Outlook reported back in 2023 about these potential financial risks that threatened Woodfibre LNG.

In September, Sempra’s Energia Costa Azul project in Baja California, Mexico, which is under construction, requested an extension from the U.S. Department of Energy. The permit to begin operations is set to expire in March 2026; Sempra has asked for that to be extended through September 2026. The project is over 90 percent completed, but has been repeatedly delayed. Last year, Sempra revealed $300 million in additional costs due to construction delays and higher labour costs.

Other export terminals are running into delays before they even break ground, an indication that companies and investors are starting to hesitate about pressing forward on risky projects.

Energy Transfer has reportedly pushed back its expected FID announcement on Lake Charles LNG until 2026, previously having targeted late 2025. Bloomberg reports that rising costs and the need for more time to finalise contracts are the reasons for delay.

“High construction costs, schedule uncertainty, and the looming glut are becoming more serious impediments to financing,” Clark Williams-Derry, an energy finance analyst at the Institute for Energy Economics and Financial Analysis, told Gas Outlook. “The glut thesis is increasingly becoming conventional thinking.”

Commonwealth LNG, a proposed export terminal in southwest Louisiana, recently asked the U.S. Federal Energy Regulatory Commission (FERC) for a four-year extension on its construction authorisation. As it stands, the project must be placed into service by November 17th, 2027 — ultimately not feasible given that it hasn’t announced a final investment decision yet and construction could take a few years.

In a regulatory filing, Commonwealth blamed project delays on legal fights and the “unprecedented, historic delay” in receiving its DOE permit during the Biden administration’s high-profile LNG permitting “pause.”

“Despite these delays, Commonwealth has continued to steadily develop the project, both in terms of obtaining and maintaining essential project permits and advancing the project commercially and financially,” the company said. Commonwealth has secured contracts for its LNG with Petronas, Glencore, JERA, and EQT.

But the project received a fresh setback in mid-October when a Louisiana state court struck down a key coastal use permit. The court ruled that state regulators did not adequately consider environmental impacts on affected communities.

Commonwealth LNG has said that it intends to announce FID on its project in the third quarter of 2025, but the latest loss in court could result in further delays. Commonwealth did not respond to questions from Gas Outlook.

“If the decision is affirmed on appeal, and I expect the decision to be appealed, it would take some effort for our Office of Coastal Management to analyze the climate change impacts and environmental justice impacts of this project. But that is effort they are required to undertake,” Clay J. Garside, a partner at law firm Waltzer Wiygul & Garside LLC, which represented the plaintiffs, told Gas Outlook.

Waning investor enthusiasm

Following the widely-attended Gastech conference in Milan in September, the CEO of Gulfstream LNG, a proposed project in Louisiana, warned about “irrational exuberance” taking over the industry.

“I think we are kind of losing sight of the plot here. The industry is actually growing too fast. There is a huge sense of FOMO, fear of missing out. Everybody is trying to get their projects across to FID,” Vivek Chandra said.

The heads of much larger energy companies are beginning to echo that alarm.

TotalEnergies CEO Patrick Pouyanné said at Gastech that the world is “building too much” LNG. “We are facing many U.S. projects. We will face oversupply…for some years if all these projects come onstream.”

Wael Sawan, CEO of Shell, also voiced concern that too many LNG projects are moving forward.

“The number of final investment decisions being taken surprises me, if I’m honest, because it’s at the higher end of the cost curve,” Sawan said an at an Economic Club of New York event in late September. “So, it’s not economically fully rational.” Shell still believes that LNG demand will grow by 60 percent through 2040.

The sudden slowdown in LNG imports in Asia in 2025 has forced the industry to begin to reckon with the risks of a supply overhang. LNG imports across key Asian markets — China, India, Thailand, Pakistan, to name a few — have unexpectedly declined this year.

“Yes, I believe there are too many projects under construction,” Geoffroy Hureau, Secretary-General of Cedigaz, a Paris-based gas analysis association, told Gas Outlook. “The assumption that LNG will replace coal on a large scale is overstated. In many countries, it is renewables that have displaced coal—and sometimes gas.”

He said demand in Asia may not materialize, at least not in the way that the industry has expected.

“Many of the expected LNG growth markets are highly price-sensitive and have strong solar and wind potential. With renewables plus storage now competitive with gas and still getting cheaper every year, the demand outlook is less robust than often assumed,” Hureau said.

“Low LNG prices could stimulate some demand, but unless Chinese demand rebounds strongly, I doubt it will be enough.”

He added that China’s previous burst in gas consumption was driven by policy objectives aimed at slashing urban air pollution. Now, it’s strategic goals are different, narrowing the opportunity for LNG.

“Today, China is pushing renewables aggressively while retaining coal, partly as a matter of strategic independence—they may not want to be ‘energy dominated,’” Hureau said.

But the rising costs and construction delays hitting North American LNG projects may mitigate the depth of the supply glut, pushing off new capacity by months or maybe even by several quarters.

“Rising costs are clearly an issue. Delays add to costs but may also temper the glut,” Hureau said. “Projects supported by long-term contracts should be relatively safe, even in a weaker market, but traders and aggregators without end-user demand behind them could be exposed if margins get squeezed.”

Clark Williams-Derry said that we are nearing the end of the road for the latest wave of new LNG projects.

“I think the window for new projects is starting to close, and projects that have made a lot of headway are dashing to the finish line, leaving also-rans behind,” Williams-Derry said. “There are lots of projects competing for a limited supply of capital.”

(Writing by Nick Cunningham; editing by Sophie Davies)