U.S. liquefied natural gas export terminals have been operating above capacity, helping to meet demand in Europe and producing solid profits for their owners and traders cashing in on high prices for the fuel.

But the extra output cannot last. The liquefaction plants, which are overengineered to provide safety and reliability margins, can overproduce for a while but not nonstop, said Kristen Holmquist, head of data analytics at Poten & Partners.

“We’re about as high as you can go,” Holmquist said during an April 27 webinar on LNG markets. Pushing too hard can lead to maintenance shutdowns, she said.

Receiving and regasification terminals in Europe also have been running above capacity, said Jon McDonald, forecasting manager at Poten & Partners, a global firm specializing in oil, gas and shipping brokerage and commercial consultant services.

The push to export more LNG is intended to help Europe replace Russian gas supplies as the continent works to cut off the flow of its energy dollars to President Vladimir Putin’s regime.

The U.S. LNG industry already is seeing a slowdown from January and February, when feed gas into liquefaction plants on several days exceeded 13 billion cubic feet per day. Gas flows into the seven operating plants in April averaged about 12.3 bcf a day, due to maintenance needs.

The decrease in production for April represents about six fewer LNG tanker cargoes for the month, worth about half a billion dollars.

The volume going into LNG plants in April represented about 13% of total U.S. gas production that month. It was zero just six years ago, before the first of the terminals came online.

The ConocoPhillips LNG plant in Kenai, which shipped its last cargo in 2015, was the country’s only liquefaction and export terminal for more than 40 years until it shut down. Though a pioneer, the plant was small by current standards, with an output not much more than 1.5% of current U.S. production capacity.

U.S. LNG capacity will inch up by the end of the year to 13.8 bcf a day when Venture Global completes work on the last of its liquefaction units and reaches full production at its Calcasieu Pass terminal in Louisiana.

After that, the next new plant is not scheduled to come online until 2025. Golden Pass LNG in Texas, a joint venture of Qatar Energy and ExxonMobil, will move U.S. capacity to 16 bcf a day.

That same year, Cheniere Energy, by far the largest U.S. LNG producer with a terminal in Louisiana and one in Texas, expects to start producing from a $7 billion expansion of its operation in Corpus Christi, Texas.

At full production, the eight U.S. export terminals will be capable of producing and loading 132 million tonnes of LNG per year — almost seven times the volume of the proposed $40 billion Alaska LNG project. The state-sponsored project is one of several in the U.S. and Canada with federal authorizations in hand but lacking customers and financing to proceed to a final investment decision.

“Interest in U.S. projects has peaked again,” especially for developers that have approval from the Federal Energy Regulatory Commission, Holmquist said. Buyers are hesitant about projects still needing FERC authorization, fearful of permitting delays as U.S. policy veers toward growing concerns over climate change.

In addition to permits, buyers look for low prices and flexibility not to take contracted cargoes when they are not needed, she said.

U.S. LNG project developers broke from the traditional business model years ago in offering fixed-price contracts for liquefaction services, plus the cost of feed gas. That shifted the commodity price risk to the buyers, and ensured that the plant operators made a profit. Though developers gave up the upside of extra profits when LNG prices spiked, they avoided the downside of weak markets.

Cheniere Energy was the first to sign up customers under fixed-price deals for liquefaction services at its Sabine Pass, Louisiana, terminal more than a decade ago. The going liquefaction rate started at $3 per million Btu of gas (1,000 cubic feet), with some deals a little higher and some a little lower.

But as costs came down, and competition went up, liquefaction fees offered by U.S. project developers dropped to as low as $1.75 to $1.85 per million Btu, Holmquist said. Intense buyer interest, particularly from Europe, in taking more U.S. gas has pushed the rate to $2 or $2.25 in some new contracts, she said.

A 50-cent increase in liquefaction charges can add more than $1.5 million to the cost of a standard-size tanker load leaving a U.S. Gulf Coast port.

Delivery flexibility in contract volumes “means a lot in today’s market,” Holmquist said, particularly the option to pay the liquefaction fee and not take any gas.

Foregoing delivery of an LNG cargo when prices are low saves the buyer from losing even more money on the gas than just the $2 or $3 per million Btu they would pay for unused services at the liquefaction plant. The LNG terminal owner is protected and still collects on the contract.

Such flexibility was particularly important to buyers during the worst of the pandemic in 2020, when market prices for LNG at their low point were under $3 per million Btu and traders would have lost more even money buying the gas from U.S. producers, paying to liquefy and shipping it into depressed-demand markets.

Charif Souki was head of Cheniere when it embarked on the export business and new pricing structure. He is now co-founder of LNG developer Tellurian, which has plans to build a terminal in Louisiana. Looking at growing demand worldwide for the fuel, Souki told The Wall Street Journal last week: “The best time to start an LNG facility would have been five years ago. … The next best time is today.”

Not wanting to wait, Tellurian began early site work on its $12 billion Driftwood LNG plant in Louisiana last month, even though it has not completed financing.

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