America's Big Gas Export Advantage

Why American LNG exporters have a great cost advantage.

Jun 11, 2014 at 3:49PM

North America may soon become a natural gas exporter, but this will require much more liquefaction capacity. That's why several companies are planning to build export terminals for liquid natural gas, or LNG, in the U.S.and Canada. Cheniere Energy (NYSEMKT:LNG) through its limited partnership Cheniere Energy Partners LP (NYSEMKT:CQP) is already constructing such a facility. But will these projects provide attractive returns for investors?

A new report now delves into the economics of LNG export facilities, and it turns out that these North American projects may offer better returns than others around the world. The reason? Existing infrastructure.

LNG export economics
The International Energy Agency, or IEA, presents a model for the economics of such plants in its 2014 World Energy Investment Outlook. According to the IEA's model, the key factors in determining the return on investment, or ROI, of a liquefaction project are:

  • the cost of the feedstock gas used to produce the LNG;
  • natural gas prices in the consuming region overseas;
  • the initial cost of the facility in terms of dollars per ton of annual LNG capacity.


Chart courtesy of International Energy Agency

The handy chart above shows some possible trade-offs among these variables. For example, with current U.S. feedstock gas prices at about $4 and European prices at about $10, an acceptable plant cost would be about $1,200 per ton of annual LNG production capacity. Thus, a liquefaction plant with a capacity of 10 million tons per annum, or MTPA, should cost no more than $12 billion to build.

So how do current projects stack up? According to the IEA, many of the world's current liquefaction projects involve building in remote areas with little or no existing infrastructure. These "greenfield projects" have capacity costs well into the $2,000 per ton area. But the projects in North America have plenty of existing infrastructure. That lowers initial construction costs and makes their potential returns more attractive.

Cheniere takes the lead
Cheniere's Sabine Pass project in Louisiana is the only new LNG export facility that has reached the construction phase so far. Cheniere is building four LNG production trains on the site, each with a capacity of 4.5 MTPA of LNG. The cost estimate of the project is $7.74 billion, making the cost of capacity just $430 per ton. The company expects to complete the first two trains late in 2015, and to finish constructing the other two about a year later.

Cheniere's proposed LNG export facility at Corpus Christi, TX isn't quite as economical. It has an expected capacity cost of $815 per ton (see table below), but given the IEA's model, that's still well below the acceptable cost threshold.

Cheniere is getting it done in terms of sales as well. On June 2, the company announced a new sale and purchase agreement, or SPA, with Gas Natural Fenosa for 1.5 MTPA from the second train of the proposed Corpus Christi plant. Gas Natural Fenosa will be buying LNG from the Sabine Pass plant too, and Cheniere has SPAs for approximately 5.3 MTPA in total. That's about a sixth of the combined capacity from both plants.

Sempra jumps in with both feet
Sempra Energy (NYSE:SRE) is on the bandwagon too. Not only does its Cameron LNG export project in Hackberry, LA adorn the cover of the company's 2013 annual report, but Sempra's Chairman and CEO, Debra L. Reed, calls the facility Sempra's most important project. Under a joint venture agreement with GDF Suez, Mitsubishi, and others, Sempra retains a 50.2% stake in Cameron. 

The Cameron project is another that uses existing LNG infrastructure to cut construction costs. After the $9 billion-10 billion upgrade, the facility will have three LNG production trains with a combined capacity of 12 MTPA, for a capacity cost of $833 per ton. The Department of Energy, or DOE, has approved the project and Sempra is awaiting approval from the Federal Energy Regulatory Commission, or FERC.

A Foolish look forward
The table below shows selected LNG export projects and the cost of capacity for each. 

Project  and Location
Cost ($billion)
Capacity (MTPA)
Cheniere Sabine Pass, LA 7.74 18.00 $430
Chevron and Apache Kitimat, BC (Canada) 4.50 10.00 $450
Dominion Resources Cove Point, MD 3.80 5.25 $724
Cheniere Corpus Christi, TX 11.00 13.50 $815
Sempra-50% Cameron, LA 10.00 12.00 $833
ConocoPhillips-50% Freeport, TX 11.00 13.20 $833

Data from Bechtel, Bloomberg, and project owner sources. 

These costs are all acceptably low given the IEA's model, mainly because the projects use existing infrastructure and often involve just converting existing facilities.

Cheniere is the canary in the coal mine, so watch for news from its Sabine Pass project to get a first look at how well (or poorly) the rest of these projects may fare. Beware of cost overruns, but keep in mind that there's a lot of leeway here. Watch for news of regulatory approvals or delays from DOE and FERC to see which way the wind's blowing.

These North American based projects have great economics compared to others around the world, so this is potentially a hot area for investment. 

OPEC is absolutely terrified of this game-changer
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour (That’s almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company’s can’t-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we’re calling OPEC’s Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock… and join Buffett in his quest for a veritable landslide of profits!

Scott Percival has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers