Persian Gulf States may invest in U.S. LNG

Middle Eastern energy giants Saudi Aramco and the Abu Dhabi National Oil Company (ADNOC) are in talks with U.S. LNG developers to invest in gas export terminals on the Gulf Coast. Analysts say that the investments, were they to occur, may “accelerate” final investment decisions in new U.S. LNG projects. Most pending projects are currently in a holding pattern as the U.S. government has paused the permitting process.

According to a Reuters report, Aramco is considering an investment in phase 2 of Port Arthur LNG in Port Arthur, Texas, a project backed by Sempra Infrastructure. Phase 1 is currently under construction.

ADNOC is looking at an investment in phase 4 of NextDecade’s Rio Grande LNG in Brownsville, Texas. The first three trains of that project are also currently under construction.

The news comes a few months after Aramco acquired a $500 million stake in MidOcean Energy, an LNG developer backed by EIG, an American investment firm. At the time, Aramco said it was making overseas LNG a new strategic priority, with the September 2023 MidOcean deal being just the first of many deals as part of its ambitious plans to expand its LNG portfolio.

“We anticipate strong demand-led growth for LNG as the world continues on its energy transition journey, with gas being a vital fuel and feedstock in various industries,” Aramco CEO Amin H. Nasser said in September. “We believe that gas will be important in meeting the world’s rising need for secure, accessible and more sustainable energy.”

But according to Reuters, larger deals could be in the offing. Analysts say that the investments would have geopolitical motivations, not just commercial ones.

“While other LNG-producing nations offer competitive advantages, such as Qatar’s low production costs, investing in the US LNG may enhance Gulf States energy security through diversification efforts, geopolitical considerations, the desire to tap into a market with established infrastructure, in addition to leveraging existing trade relationships and securing long-term supply contracts,” Emily McClain, vice president of gas markets research at Rystad Energy, told Gas Outlook in an email.

Targeting U.S. LNG could also be something of a response to moves by western oil majors — TotalEnergies, Shell, BP, and ExxonMobil, for example — to rapidly buildup their own investments in LNG projects scattered across North America. At the same time, regional rival Qatar is in the midst of a dramatic LNG building boom, which will allow it to retake its former position as the world’s largest LNG exporter in a few years’ time.

The discussions are also occurring at a time when new U.S. LNG projects are on hold. The Biden administration paused all new permitting in January, pending a more extensive analysis of domestic price and climate impacts of the rapid rise in American gas export volumes.

But if that pause does not become permanent, new investment from two massive Gulf State oil companies could significantly improve the fortunes of some LNG projects on the U.S. Gulf Coast.

“Increased involvement from Gulf States in the US LNG market could have significant implications if the influx of capital is substantial and may enhance the competitiveness of US LNG on the global stage,” McClain from Rystad said in an email (emphasis original). “As such, investments from Aramco or ADNOC could accelerate final investment decisions (FID) and boost LNG production capacity by further stimulating growth and buildout of US infrastructure developments.”

She cautioned that market dynamics and regulatory dynamics will also play a role in any potential Gulf State investments in U.S. LNG.

LNG bullishness at CERAWeek

On Monday, thousands of oil and gas participants gathered at the annual CERAWeek conference in Houston. Many oil and gas executives struck a note of confidence that global gas demand would continue to rise and that the energy transition would not slow down the expansion of LNG.

“I’m really optimistic on LNG and gas,” Torbjörn Törnqvist, CEO of the Gunvor Group, a top global commodities trader, said at the conference. He said that Gunvor has expanded its LNG fleet due to a huge tranche of new LNG export coming online over the next few years, mainly in the U.S. and Qatar.

Shell CEO Wael Sawan said that the company will continue to grow its LNG business, and that he is seeing a “huge pickup” in demand on the back of lower prices. Sawan took over as CEO a little over a year ago, and has made maintaining the company’s oil production base while growing its gas production and LNG trading the overarching priorities of the company. Shell recently scrapped its 2035 climate target to make room for its growing gas business.

Aramco’s Nasser was more direct about what he saw as the state of the energy transition. “We should abandon the fantasy of phasing out oil and gas, and instead invest in them adequately, reflecting realistic demand assumptions, as long as essential,” he said. Those comments were met with applause from the audience.

Meanwhile, commercial activity in LNG is also picking up. Gunvor also just inked a supply deal with Texas LNG, a proposed LNG project in Brownsville, Texas. The 20-year deal would be for 4 million tonnes of LNG per year (mtpa). The facility, if it moves forward, would be constructed immediately adjacent to NextDecade’s Rio Grande LNG.

“With the previously announced commencement of the execution phase of the project financing process, this agreement aligns with our plan to take a final investment decision on Texas LNG this year,” Vlad Bluzer, Co-President of Texas LNG, said in a statement.

Speaking at CERAWeek, TotalEnergies CEO Patrick Pouyanné said that his company would make an upstream acquisition in the Eagle Ford shale in south Texas. That would compliment the French oil giant’s stake in Rio Grande LNG.

“We are willing to integrate our LNG position with more upstream gas production,” Pouyanné said. He added that Total is considering further expanding its position in the U.S. LNG sector.

The confidence in the future of the LNG sector comes even as research into methane continues to point to a far worse impact from gas than officials believe. A study published last week found that upstream methane emissions from oil and gas production sites are three times higher than the U.S. government thinks. The U.S. is the largest emitter of methane from the oil and gas sector in the world, according to new data from the International Energy Agency.

But that doesn’t seem to be slowing them down. The industry got some welcome news from the Biden administration at CERAWeek. When asked about the Biden administration’s LNG pause during a panel discussion, U.S. Secretary of Energy Jennifer Granholm downplayed the disruptiveness of the decision. “This is just a pause to see what the future should bring,” Granholm said. “I predict that as we sit here next year…this will be well in the rear-view mirror.” That statement also garnered applause from the attendees.