RE:Potential Future Pricing Issues US LNG Plants ?The relevance is that this is the competition for Goldboro- though a very odd form of “competition”.
Aklred Sorenson hustled out of nowhere by peddling to the Germans the idea of a long term contract. There must be a couple dozen production trains on the US Gulf now, but at the time they were all just on the drawing board too. But the business model they all use has no need for long term contracts. Alfred paints it as inherently superior, but the long shot of putting together all the pieces for a long term contract was the only way Alfred could play this game.
And the Germans liked it. Even if he was a longshot, did not hurt to try.
So the German government pressed Uniper (then E.On) into signing an agreement and assured they would provide loan guarantees (as well as helping PEA this is a de facto subsidy to make sure Goldboro didn’t cost Uniper too much).
From the beginning this was billed as a hedge on Germany depending on Russian gas. Not really- the important parts of the story are left out. Germany wanted/wants Nordstream 2. In particular both the governing party and the SPD are nicely tied to Putin and the Russian gas “interests”. Nordstream 1 was not popular with any allies of Germany- and now Germany wants to do more. Really?
Voila- contract for Goldboro LNG to show Germany is “serious” about hedging that dependency on Russia. The contract is designed for replacing German and Dutch North Sea gas that is dwindling to zero.
A long term supply contract shows you are serious. AND, if you can get a good deal, it is good business as well. Maybe you can get LNG cheaper short term from American plants (not built yet). But Germany likes long term guarantees for the electricity generation costs important to its manufacturing base. Germans are slow as they can be about reducing coal dependency, but they know and knew then that they at least cannot increase use of coal. Which means more gas. Qatar also does long term LNG supply contracts. But that is the Persian Gulf- hardly a signal that you are serious about ensuring at least a tricle that does not come from Nordstream 2.
Long and short of all that: Sorenson made a commitment that he could assemble all his supply and production costs under a level that would guarantee an attractive long term LNG supply price. The Germans liked that and it was worth providing cheap for them subsidized financing. (Cheap on the surface at least.)
In a way, this is all water under the bridge now. Those production costs are close to being finalized. PEA will be able to meet the delivery price, or it won’t. I don’t know if they ever really believed they could get equity financing from anybody before they had their costs in… whatever, they are tacitly acknowledging there will be no investment until they can give hard evidence of making all the costs work. And while PEA could start building with the German loan money only- and MAYBE hoped they could convince the Germans to go with that- that is not on. German will do nothing until they see equity on the table.
So that’s where it stands now.
So what relevance might there be in that speculation about future pricing of US LNG? The article is one of those things where there is a tedious account of all the problems in ensuring future supply to those plants at good costs. And all the possible solutions. No assessment on how likely it will come together on the aggregate.
But crystal ball gazing is not required. There is no certainty that they will be able to do it. Which is where the long term PEA contract comes in. Long term price stability (presumably with minimal near term predicted cost premiums for Germany), and security since the only other long term contract sellers are in the Middle East or too far away in Australia.
So MAYBE this potential price instability for US LNG is Sorenson’s “fudge room’. PEA always is strained putting the pieces together. You have to figure that is going to be even more so for the FID- no matter how “soft” it is.
MAYBE the worries about that giant competitor in the US will give PEA some breathing room- Germany’s continued patience- if as usual PEA just cant quite pull all the hardest stuff together.
Maybe.