World Trying To Quit Fossil Fuels Gets Flood Of Gas Instead
The biggest wave ever of liquefied natural gas megaprojects is about to ramp up as the sector bets on its place in the clean-energy transition.
![<div class="paragraphs"><p>Tug boats prepare to pull out an LNG Tanker vessel at the Cheniere Sabine Pass Liquefaction facility in Cameron, Louisiana, U.S.</p></div>](https://media.assettype.com/bloombergquint%2F2024-01%2Ff0006fde-3dcb-4343-bad5-2b6de4af59c1%2F_1x_1.jpg?rect=0%2C123%2C2000%2C1125&auto=format%2Ccompress&w=200)
(Bloomberg) -- As delegates at the annual UN climate talks in Dubai celebrated last month’s historic deal to move away from fossil fuels, tens of thousands of laborers just across the Persian Gulf in Qatar were chasing a different goal: make the world’s largest natural-gas export facility even bigger.
At a time when some see oil demand nearing its peak and coal is likely to face a slow but steady decline, the energy sector is betting hundreds of billions of dollars that the third leading fossil fuel — natural gas — has a place in the world’s energy mix through at least 2050. That lifespan hinges on one last torrent of investment into the massive terminals that liquefy and export super-chilled liquefied natural gas, or LNG, for countries not yet ready or able to make the transition to renewables.
Five US sites teem with their own crews working to conjure titanic industrial structures from America’s Gulf Coast. Two of the US projects aim to come online as soon as this year, kickstarting what may be the world’s final wave of fossil-fuel megaprojects.
Tallying just the ones that have broken ground, more than 200 million tons of new natural gas export capacity will start up in roughly the next five years, according to BloombergNEF. If additional early-stage projects still awaiting final investment decisions move forward, too, more than 300 million tons of new LNG capacity could come online by 2030, according to Baker Hughes Co. That’s a roughly 70% spike from today, adding enough annual gas capacity to power half a billion homes and ensuring natural gas’s relevance — and emissions — for decades to come.
This begins “the third big wave in LNG,” said Anne-Sophie Corbeau, a global research scholar at the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs. “By 2028, when everything is basically built, we end up with a hell of a lot of LNG in the US and a hell of lot of LNG in Qatar.”
In short, it took 60 years for the global LNG industry to develop the first several hundred million tons of export capacity; now, the industry has the potential to do it again in six.
![Cheniere’s Corpus Christi Stage 3 expansion is part of the third and biggest wave of new liquefied natural gas supply to enter the global market.Photographer: Mark Felix/Bloomberg](https://media.assettype.com/bloombergquint%2F2024-01%2F011f1b59-29aa-4123-b1bb-9588dfcf87f4%2F_1x_1.jpg?auto=format%2Ccompress)
Until the 1960s, the only way to move large quantities of gas was through pipelines. So operators turned to a process that lets them cool natural gas to -256F (-160C), transforming it into a liquid state that can be shipped in specialized ships. Liquefying gas makes the fuel far denser, occupying 600 times less space.
Once seen as a sleepy segment of the energy industry, a whirlwind of events electrified the pace of LNG’s expansion. The US fracking boom and the development of cheaper import infrastructure unleashed an abundance of gas at lower prices. China’s growth, developed markets’ shift away from coal and a shrinkage of Japan’s nuclear industry after the Fukushima disaster underpinned the need for more export projects — and fast. A vibrant spot market emerged, with trading desks proliferating from Singapore to London. Natural gas quickly became the world’s fastest growing fossil fuel.
But it was Vladimir Putin’s invasion of Ukraine in February 2022 that supercharged the market. Cheap Russian pipeline gas, which used to meet about one-third of European demand, dried up virtually overnight. European Union officials started traveling to Qatar and the US to broker long-term agreements, and gas-dependent industries for the first time signed deals to import LNG directly. The bloc’s imports of LNG jumped roughly 60% in 2022.
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“Putin calculated that he could use the gas weapon to shatter the coalition supporting Ukraine,” energy historian and S&P Global Vice Chairman Daniel Yergin said. “It failed largely because of LNG.”
Companies, investors and governments have doled out about $235 billion globally on new LNG supply since 2019, with more than $55 billion expected to be invested between 2024 and 2025, Rystad Energy estimates. All together, that’s roughly the GDP of Finland.
LNG today supplies just 3% of the world’s energy needs, estimates Anatol Feygin, chief commercial officer of Cheniere Energy Inc., a US LNG pioneer. But the world feels it acutely when there’s not enough to go around. When nations like Pakistan or Bangladesh don’t get their shipments, production of everything from fertilizer to textiles can grind to a halt. Since tankers of LNG can be shipped to any city with an import terminal, outages or expansions anywhere can ripple through availability and prices everywhere.
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Natural gas advocates have long touted it as a “bridge fuel,” or a less carbon-intensive way to ease the transition away from oil and coal. That bridge appears to be getting longer and longer. Although BNEF says solar and wind power installations likely hit records in 2023, renewables still aren’t being deployed fast enough in many markets to replace fossil fuels. In a blow to the world’s climate goals, it’s becoming increasingly accepted in some circles that gas will be needed as a longer-term safety net to support the intermittency of expanding renewable generation.
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Much of the new LNG supply will go to China, but even the EU has agreed to buy shipments of Qatari LNG past 2050, despite the bloc’s binding goal to be climate neutral by then. Although Europe has been building record renewable generation, working on hydrogen infrastructure and making its manufacturing cleaner, the transition hasn’t been entirely smooth. The offshore wind industry has been hit by soaring raw-material prices, higher borrowing costs and long-running supply-chain issues. In 2022, the EU paid more than $300 billion for natural gas imports, a threefold increase over the previous five-year average, according to the International Energy Agency.
“Europe’s been a bit shaken by the lack of energy security,” said Marc Howson, head of Asia at Welligence Energy Analytics.
Compared with coal, gas has long pitched itself as relatively green. On average, replacing coal with gas reduces emissions by 50% when producing electricity and 33% for heat generation, the IEA said in 2019. Oil and gas industry executives at COP28 in Dubai appeared particularly determined to sell LNG as a climate solution, and it seemed to work: The agreement laid out the idea that unnamed “transitional fuels can play a role in facilitating the energy transition,” which most read as a nod to natural gas’s role.
Empirical data from satellite observations and new research suggest a much larger climate impact from the gas sector than touted by many government and industry officials. Natural gas’s primary ingredient, methane, is a super-potent greenhouse gas when released without burning, trapping more than 80 times more heat than carbon dioxide during its first two decades in the atmosphere. According to a study published by the National Academy of Sciences, the emissions leakage from gas wells plus downstream operations likely exceeds the 3.2% threshold after which gas actually becomes worse for the climate than coal for some period. Scientists using satellite observations between 2018 and 2020 estimate oil and gas production in the US’s most prolific shale patch, the Permian, had an average methane intensity of 4.6% — significantly higher than an industry target of below 0.2%.
Read More: Methane From Oil, Gas Worse Than Reported to UN, Satellites Show
The short-term climate impact from the world’s existing LNG supply chains, including final combustion of the fuel, is about 1.5 billion metric tons a year of carbon dioxide equivalent, according to a 2022 IEA model. Using the same metric for the 300 million tons of new LNG planned to come online would add another 1.2 billion tons of CO2 equivalent each year. That exceeds the annual CO2 emissions of Japan, the world’s fifth biggest polluter.
![World Trying To Quit Fossil Fuels Gets Flood Of Gas Instead](https://media.assettype.com/bloombergquint%2F2024-01%2F610072c2-bfbe-43fb-8ebc-800f32af5974%2Fmap.jpg?auto=format%2Ccompress)
That has environmentalists ringing alarm bells with rising urgency. A group of Democratic lawmakers recently called on the Biden administration to apply more scrutiny to US projects’ long-term impact on climate change. Bill McKibben, who galvanized public efforts to block the Keystone XL oil pipeline, is pressing US energy regulators to reject any LNG permitting currently under consideration — especially after the COP28 pledge. Similar calls to action beleaguer projects in Mozambique and Australia.
“It’s impossible to go on permitting these things in good conscience. No one can sign a paper that says it’s time to transition from fossil fuels and then permit” new US projects that will add to global emissions, McKibben said. He and other activists are planning a three-day demonstration in February to urge the Department of Energy to stop licensing new US export terminals.
As climate pushback mounts, the White House has been quietly reevaluating whether the criteria it uses to approve new US export plants is sufficient. It’s possible future plans will get derailed if banks stop investing in gas, as many in the last decade stopped funding new coal projects. So far, though, a finance sector that once shied away from fossil fuels has reemerged in the wake of Russia’s invasion. And those permitted sites already in construction won’t be sidelined. In order to line up financing, developers in the US typically lock in contracts with customers who agree to buy gas for 10 years or longer. Some of Qatar’s contracts push out more than a quarter century.
![In order to line up project financing, developers in the US, including Cheniere, typically lock in contracts with customers who agree to buy gas for 10 years or longer.Photographer: Mark Felix/Bloomberg](https://media.assettype.com/bloombergquint%2F2024-01%2F86fe2027-d994-4122-90d1-7bb6525f3abf%2F_1x_1.jpg?auto=format%2Ccompress)
As with all commodity markets, LNG producers are in a precarious balancing act: bring on too much capacity too quickly and risk a glut; ramp up too slowly and the world will resort to alternate fuels, like coal. If the operators’ forecasts are wrong and gas demand wavers once the initial long-term contracts expire, they risk becoming some of the world’s most expensive underutilized assets.
The Institute for Energy Economics and Financial Analysis, a progressive economic think tank funded by climate organizations, warned in February 2023 of a looming oversupply, noting that “liquefaction projects targeting in-service after 2026 may be entering a much smaller demand pool than bullish market forecasts anticipate.” Morgan Stanley sees supply additions beginning to outpace demand as soon as next year. Wood Mackenzie estimates LNG demand won’t peak until 2045.
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“This is the first time in the past 25 years that all the players, even the big ones, are struggling to decipher what’s going to happen in the next few years, let alone the next 20 years,” said Ogan Kose, a managing director at Accenture who specializes in gas.
Read More: China Is Buying Gas Like There’s Still an Energy Crisis
Since the start of 2022, Chinese firms have signed more long-term contracts than any other nation, according to BNEF data. Europe isn’t far behind, with some major importers, including Shell Plc and Eni SpA, investing in Qatar’s expansion and agreeing to procure fuel from the project until at least 2052. Dozens of countries, from Poland to Japan, have made long-term LNG purchases, locking in their fuel supply — and the related environmental impact — for the long-haul.
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On a mild Monday morning in early December, some 1,700 construction workers bustled around a worksite just north of Cheniere’s Corpus Christi plant on the Texas coast. Hundreds of heavy vehicles — from cranes and excavators to dump trucks and cement mixers — zigzagged across the massive plot that overlooks a sheltered coastal bay, dodging the 200 portable toilets shipped in for the crew. The construction workforce is due to more than double in the coming year as the company tries to bring the first of its expanded capacity online.
Known as Stage 3, the project will add seven modular midscale “trains,” the industry term for the giant units that convert natural gas to liquid. They’ll join the three trains already operating there. The expansion also includes a 40-mile pipeline that will connect to the South Texas Agua Dulce hub, bringing a straight path of Permian shale gas to the plant. The total price tag: an estimated $7 to $8 billion.
Four other billion-dollar expansions or new projects across Texas and Louisiana are also in the works: Plaquemines, Rio Grande, Port Arthur and Golden Pass, which is owned in part by Qatar. They’ll all together add nearly 80 million tons of annual capacity, solidifying the US’s role as top exporter. After the current wave ramps up, North America and Qatar will account for about 60% of global LNG supply, Wood Mackenzie said.
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Back along the Persian Gulf shoreline, state-owned QatarEnergy and its investors are spending around $45 billion to grow output. The sprawling operation in the industrial city of Ras Laffan on a spit of land protruding into the limpid water already comprises multiple LNG trains, a gas-to-liquids refinery, fuel processing plants and tanker loading berths. The North Field East project, the biggest part of the expansion, is now crawling with 30,000 workers hailing from 50 countries. This year, the workforce could swell to more than 45,000, estimates Chiyoda Corp., the Japanese firm building the plant. QatarEnergy didn’t reply to requests for comment.
Developing such a project in Qatar’s harsh heat, which can hit seasonal highs of 122F (50C), isn’t easy: Much of the work during the summer must be done at night. When the sun is up, the laborers constantly alternate between working and breaking, in order to avoid exhaustion and dehydration. Black flags are raised on the site to halt work when it gets too hot, a project advisor at Chiyoda said.
“There has never been a project like this before,” said Ken Nagao, a senior executive for global business development at Chiyoda. “And there will probably never be one again.”
--With assistance from Anthony Di Paola, Aaron Clark, Denise Lu, Priscila Azevedo Rocha and Tope Alake.
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