INTERVIEW: Commonwealth LNG, among hardest hit by US permitting pause, eyes FID

Commonwealth LNG developer Kimmeridge could secure sufficient long-term contracts by the end of the year to commercially sanction the Louisiana export project, based on talks with potential buyers and investors after Donald Trump's election bolstered expectations that the US will end a moratorium on LNG export permitting, Managing Partner Ben Dell said in Nov. 15.

The project with a permitted peak capacity of 9.5 million mt/year was among the hardest hit by the US Department of Energy's pause on issuing the approvals, announced in January. Commonwealth, which built significant commercial momentum before it was caught up in the permitting hold, has been waiting on an export permit from DOE for about two years.

"The biggest question that's been out there has been on the permitting side, and risks associated with that have materially changed," Dell said. "We're excited about continuing to develop the project. Our expectation is we'll FID in the middle of next year and hopefully put first cargoes on the water end 2028-early 2029."

Lifting the pause

The pause slowed contracting tied to US projects, creating obstacles in negotiations with buyers and lenders who want to see the approvals, while exposing export developers to inflationary pressures on their projects.

Trump has promised to resume issuing LNG export licenses once in office in January. But how quickly, and what actions the current administration will take in the meantime, remain key questions.

"What does the current administration try to layer in before that date?" Dell said. "I do feel it's becoming significantly more political now."

In announcing the pause, the DOE said it needed time to update the economic and environmental studies it uses to decide whether approving additional exports is in the public interest. Energy Security Jennifer Granholm said Nov. 15 "the study will be complete by the end of this year," speaking at the UN Climate Change Conference in Azerbaijan.

House Republicans the same day sent a letter criticizing the DOE over reports it is rushing to publish the study and "intentionally hamstring" the next administration, saying the agency "should immediately stop work on any plans to expand the scope of review or add new conditions to LNG export licenses."

But Granholm's comments also suggested the Biden administration would not change the way the US considers LNG export permits.

"Obviously we won't be there to implement based upon the study, so we'll have to see how it's viewed by the next administration," she said.

Dell expected the resumption of LNG export approvals in "the first weeks or first month" of the new administration.

Even before it was announced, Commonwealth's wait stretched well beyond the average time US developers have faced. Dell has described the pause as both a "driver" of the talks over Kimmeridge's June acquisition of Commonwealth and a factor already baked into the private equity firm's investment thesis.

The Kimmeridge co-founder described the risk of trade disputes under the Trump administration as less clear. Trump has promised to impose tariffs from 10% to 20% on all imports and between 60% and 100% on imports from China.

"This is front and center," Dell said. "At the same time, there's also limited visibility about what's, candidly, really going to happen. Our expectation is there will be incremental tariffs, and there will be some incremental costs, but they are manageable within the entire EPC contract."

Reshuffling the deck

The Commonwealth developer is updating the pricing in its agreement with contractor Technip Energies and expects to complete the process by the end of the year, while it advances talks with potential buyers. Based on the advanced stage of talks with potential buyers, it also expects to sign binding sale and purchase agreements by the end of 2024 or the first month of 2025 covering the 8 million mt/year it is targeting for FID.

"Our goal is to have all our offtakers lined up by the end of the year, and then be finalizing documents," Dell said.

Dell did not say what liquefaction fees Commonwealth is offering, but he described the US market as in the range of around $2.40-$2.65/MMBtu for long-term contracts, with projects at the lower-end largely brownfield additions.

"Because Commonwealth is a modular build, we view ourselves as we look at where we are in the market as some of the lowest-cost of a greenfield development and slightly higher than a brownfield development," Dell said.

The developer in September announced a preliminary 20-year deal with commodity trader Glencore for 2 million mt/y. The terms include equivalent natural gas supply from Kimmeridge Texas Gas, Kimmeridge's upstream business operating in South Texas.

Kimmeridge also intends to keep 2 million mt/year of LNG from Commonwealth.

Before the acquisition, Commonwealth had one binding long-term SPA, a 2 million/mt year deal with Australia's woodside. It had also announced a series of preliminary offtake agreements, including the deal with Kimmeridge, with counterparties including US producer EQT, trading house MET Group and an unnamed European utility.

Dell maintained Nov. 15 that the mix of contractors will ultimately differ, suggesting plans to end at least some of the previous deals. Counterparties it's in talks with include upstream producers and global LNG players.

"We've been looking to reshuffle the deck to make more of a strategic coalition and continue to do that," Dell said. "There's a number of other partners we're moving through who we haven't yet announced."