Philadelphia LNG Terminal Could Be Bigger Than Phillies!
Jim Willis on NGL Pipelines
Editor & Publisher, Marcellus Drilling News (MDN)
[Editor’s Note: What could be better than the Phillies this year? Assurance that a Philadelphia LNG export terminal is coming to help make the Philadelphia the next Houston!]
In June, seemingly out of nowhere, a plan to build an LNG export facility on the banks of the Delaware River south of Philadelphia made big headlines in Philly (see Philadelphia LNG Export Project Still Very Much Alive & Advancing). Penn LNG, headed by Franc James, a native of Philadelphia, has “quietly lined up support to build a $6.4 billion liquefied natural gas export terminal near Philly.” While acknowledging such a project will face stiff opposition, James said he is planning to pre-file with Federal Energy Regulatory Commission (FERC) by the end of this year and reach a final investment decision (FID) by 2024. The experts at RBN Energy take a close look at Penn LNG to evaluate just how likely (or not) the project (or any LNG project in the northeast) will get built.
Currently, there are only two LNG export facilities along the U.S. East Coast: Cove Point, in Maryland, and Elba Island, in Georgia. A plant of the size Penn LNG is planning would be a MAJOR project. Cove Point LNG exports roughly 1.8 billion cubic feet per day (Bcf/d) of Marcellus/Utica gas. Elba Island exports around one-third of a Bcf per day (350 MMcf/d). According to comments in previous news accounts, Penn LNG would export roughly 1.0 Bcf/d–three times as much as Elba but only a little over half of what Cove Point exports.
As a side note, the RBN article below does not talk about Elba Island, yet Elba definitely exports M-U molecules. The larger issue is how likely, given stiff opposition from both anti-fossil fuel fanatics and liberal regulators in northeastern states, will it be for a new LNG export facility to get built? That’s the $6.4 billion question.
Without a doubt, the two biggest changes to U.S. natural gas markets in the last 15 years have been the Shale Revolution and the development of LNG exports. These completely upended the way gas flowed in this country, with the Northeast now home to the largest gas-producing basin and the Gulf Coast — including its fleet of LNG export terminals — now the U.S.’s largest demand center. Production growth in the Marcellus/Utica has stalled, however, largely due to the regulatory and legal challenges associated with building new pipeline takeaway capacity. One possible fix would be a new East Coast LNG terminal, which in addition to having easy access to cheap, almost-local gas would also be close to gas-hungry European markets. But just how likely is such a project? In today’s RBN blog, we discuss the advantages and hurdles of developing LNG export capacity on the East Coast.
The Mid-Atlantic region already has one LNG terminal, of course — Cove Point LNG, on the Chesapeake Bay in Maryland (yellow diamond in Figure 1) — and we should look at that facility in depth before we discuss the potential for a second LNG export terminal close to the Marcellus/Utica. Cove Point is a single-train, 5.25-MMtpa (700 MMcf/d) liquefaction-and-export facility owned by Berkshire Hathaway. All of its feedgas comes from the Marcellus/Utica via contracts with two area upstream producers, Coterra Energy in Northeast Pennsylvania and Antero Resources in Southwest Pennsylvania and West Virginia. The producers also manage gas transmission from the production area to Dominion Cove Pipeline (purple line), which feeds into the LNG terminal. [Feedgas flows from the supply area to Dominion Cove Pipeline via Transco Pipeline (orange line) and Columbia Gas Transmission (blue line).]
Cove Point LNG has one of — if not the — lowest feedgas costs of any U.S. LNG terminal, and this was evident during the 2020 markets crash. It was just about the only U.S. LNG terminal that did not experience cargo cancellations during the summer of 2020 (red dashed oval in Figure 2) and also is typically one of the first plants to jump into peak production mode when demand warrants — the terminal took in record levels of feedgas from November 2021 to July 2022 (blue line within black dashed oval) and likewise produced and sent out a record amount of LNG in that time (orange line within black dashed oval). We should note that Cove Point conducts annual maintenance in late September or early October, when the terminal shuts down for about three weeks — that explains the big dips in Figure 2. The terminal has been offline since October 1 this year but is expected to restart shortly. This maintenance period is factored into the terminal’s contracts (see Dizzy).
The terminal has been operational since 2018. When it was new, there was some concern that sourcing feedgas supply might be problematic in the winter months, when gas demand for Northeast space-heating can spike. But this has not been a significant issue for the terminal. True, there are some days each winter when feedgas drops, whether because the terminal’s offtakers choose to re-sell feedgas into a Northeast demand hub (Transco Zone 5 and 6 are nearby; pricing hubs indicated by red dots in Figure 1) or because of local distribution company (LDC) needs. But that has not been enough to materially impact output, in large part because Cove Point has a huge amount of storage capacity — 14.6 billion cubic feet equivalent (Bcfe) — relative to its size, giving it the highest storage-capacity-to-LNG-output ratio of any U.S. export terminal. In fact, it can store about 21 days of LNG production, which helps it deal with volatility in the Northeast winter markets.
So, Cove Point has shown itself to be a viable and highly competitive LNG exporter. Could the same be said for a second export terminal in the Mid-Atlantic region? First, it’s clear that there would be ample gas production available — the Marcellus/Utica has extraordinarily large proven reserves of gas that would be economic to produce even at much lower prices. There’s also decent in-region pipeline capacity in place to move gas around. Depending on the exact terminal location, it’s likely that only a “last-mile” pipeline would be needed to connect to a new LNG terminal.
Are any plans in the works? Well, New Fortress Energy had been planning a floating LNG project on the New Jersey side of the Delaware River but it put that project on hold because of local opposition. For now, all eyes are on Penn American Energy, which has been developing Penn LNG (see artist’s rendering below), a proposed 7.2-MMtpa (950 MMcf/d, requiring about 1.2 Bcf/d of feedgas) facility that could be built at one of four locations along the Delaware River near Philadelphia. Although the final site has not been selected, many think it could be at the Marcus Hook Industrial Complex (green diamond in Figure 1), which is already an export point for the area’s NGLs. Marcus Hook (and the three other locations under consideration) could receive gas from Texas Eastern and Transco pipelines. Feedgas could be purchased from the nearby Transco Zone 6 Non-NY or TETCO M3 pricing hubs in Southeast Pennsylvania, both of which trade at a discount to Henry Hub for most of the year. Far more likely, however, is that deals will be made directly with upstream producers to supply the terminal, cutting the producers in on the sale of LNG, thereby giving producers exposure to premium export markets in exchange for feedgas supply. It’s an attractive option for Marcellus/Utica producers who are all too familiar with low in-basin prices and constraints to get their supply out.
Penn American is in negotiations with potential offtakers, but nothing firm has been announced. Locking up long-term buyers likely wouldn’t be the biggest challenge, however. That would be running the regulatory and legal gauntlet the project would likely face. Penn LNG is already facing pushback from the environmental community in Southeast Pennsylvania and neighboring areas and would likely see a lengthy battle over state and local permits.
As we’ve discussed often in our blogs, many East Coast projects face much stronger opposition than those on the Gulf Coast, which has ended the hopes of numerous pipeline projects in and out of the area. Don’t forget that it took an intervention from arguably the most powerful member of the U.S. Senate, Joe Manchin of West Virginia, to revive the hopes of Mountain Valley Pipeline (MVP; dashed brown line in Figure 1), the last major gas pipeline project still fighting its way through the development process — and MVP is still not a done deal. The project, which is more than 95% finished but still awaiting a couple of final approvals, is not expected online before 2028.
Penn LNG will face the same pushback, but the company says it is ready for the fight. The project is already lining up its “green” credentials, including certified natural gas as feedgas, emission-reducing all-electric drives, and renewable energy to power the terminal. Penn American has indicated that it hopes to select a site soon so it can begin the FERC approval process. The developer is targeting a final investment decision (FID) in 2024 and first LNG available in 2028.
To sum up, regulatory pushback will certainly slow the approval process, but the threat is unlikely to be enough to stop Penn LNG and potentially others from making the attempt. East Coast LNG export projects offer a cheaper and abundantly available source of feedgas, with upstream producers clamoring to get out of the region and for exposure to those premium international gas prices. With the East Coast location, it’s also a shorter voyage to Europe — about nine days, versus 12-13 days from Louisiana and Texas — another advantage in today’s market, where Europe is hungry for more LNG to offset the loss of Russian supplies.
But unlike the previous LNG projects proposed in Eastern Canada (see our You Still Believe in Me series), which remain unlikely to ever move forward, feedgas and pipeline infrastructure are an advantage to a Mid-Atlantic-area project, not a hurdle that needs to be overcome. In reality, the only thing standing in the way of more East Coast LNG capacity is the tough regulatory environment, but that should not be underestimated.
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