TOKYO -- Liquefied natural gas plant investment in the U.S. is making a comeback. Resources exploration companies have until recently held off on spending, ever since oil prices collapsed starting in 2014.
But things are looking up. U.S. LNG producer Cheniere Energy has decided to construct a new plant in that country, the first such project in two years. Rising LNG imports to China are providing a tailwind for plant construction companies, which have been under pressure to land new orders.
On May 22, Cheniere announced that, in addition to two LNG plants under construction in Texas, it would expand the project by building a third plant. Planning, procurement and construction will be handled by U.S. engineering company Bechtel. The plant is slated to come online in 2021, with annual production capacity of 4.5 million tons. It is the first new LNG project construction in the U.S. in about two years, since Japan's IHI issued construction orders for its facility in the state of Georgia in 2016.
All of this is happening against the background of rising exports to China. In February, Cheniere entered into a 25-year, long-term sales contract with China National Petroleum. With the prospect of a new LNG customer prompting fresh capital expenditure, the plan is for an annual 1.2 million tons of LNG to be exported from the newly expanded plant.
The Chinese government has launched a policy to switch from coal to natural gas in electricity production facilities and factories. In 2017, it became the world's second-biggest importer of LNG, overtaking South Korea. Concerns are rising over a potential undersupply in 2022 as demand surges from emerging economies, triggering a strengthening of LNG plant investment.
It is also providing a tailwind for Japanese industry. "The LNG market is recovering faster than we expected. We have our eye on construction orders for large-scale projects in the U.S. and Africa," said Masaji Santo, CEO of Japanese engineering company Chiyoda, at the release of the company's financial results in May.
Chiyoda has set its construction order target for fiscal 2018 at 800 billion yen, 2.6 times the previous year. Among its projects are major orders for the Golden Pass LNG Terminal in Texas, planned by Qatar Petroleum, ConocoPhillips and Exxon Mobil, and Area 1 in Mozambique, under development by various companies including U.S.-based Anadarko Petroleum and Japan's Mitsui & Co.
Japanese engineering company JGC has set its fiscal 2018 construction order target at 1 trillion yen, among the highest in its history. In April, Dutch-British group Royal Dutch Shell and Mitsubishi Corp. began issuing preliminary construction orders for their planned LNG project in British Columbia, Canada, in which JGC's share is about 600 billion yen. They are awaiting a final investment decision within the year.
Apart from this, JGC has a preliminary offer for plant construction at the Jordan Cove LNG project in Oregon. With the West Coast located closer than the Gulf of Mexico to Chinese and other Asian demand, expectations are rising for further sales contracts to come from the region.