Risks Facing New LNG Projects On The U.S. Gulf And East Coasts

Forbes

24-03-2025

The Marine Offloading Facility (MOF) at the Venture Global Plaquemines liquefied natural gas (LNG) ... More export facility in Port Sulphur, Louisiana, US, on Thursday, March 6, 2025. Venture Global plans to expand its Plaquemines LNG facility south of New Orleans, bringing its total investment in current and planned US projects to more than $75 billion, according to an emailed statement. Photographer: Kathleen Flynn/Bloomberg
Major long-term capital investments require predictable profitability and stable capital costs. For the eight large-scale liquefied natural gas (LNG) projects proposed on the U.S. Gulf and East Coasts, both of these factors appear increasingly uncertain.
One of the biggest risks for these projects is unpredictable capital costs. The Biden administration and President Donald Trump have imposed tariffs on steel and critical energy infrastructure components, but future tariff rates remain uncertain. LNG facilities require specialty materials, such as high-cost cryogenic steel, which could be subject to tariffs of 25%, 50%, or even higher. This could significantly increase construction costs.
Another challenge is labor availability. Building large LNG facilities requires a substantial skilled workforce willing to relocate. With multiple ongoing projects and a limited labor pool, competition for workers will drive up wages and could lead to project delays.
LNG projects typically take five years to complete after a Final Investment Decision (FID), meaning that investments today must forecast profitability starting around 2030. While permitting under the Trump administration may not be an issue, global LNG supply and demand from 2030 to 2045 remain uncertain.
Unlike many global LNG projects that rely on stranded natural gas with little domestic competition, U.S. LNG exports depend on a vast but historically volatile internal market. The Gulf and East Coast LNG sites also face hurricane risks, which could lead to long-term force majeure events and rising insurance costs.
The U.S. natural gas market relies heavily on associated gas production from oil wells. Currently, about 25% of U.S. natural gas production comes from fracked oil wells in the Permian (20%), Bakken (3%), and Eagle Ford (5.5%) basins. Unlike conventional gas fields, where production declines slowly, fracked wells see rapid declines after just a few years.
If oil drilling slows due to falling global prices, U.S. natural gas production could drop sharply. If this coincides with increased domestic gas demand for power generation, LNG exports may face restrictions to protect U.S. energy security. A future administration could impose limits on LNG exports rather than allowing market forces to dictate supply and demand.
Foreign buyers of LNG must also consider geopolitical risks. The United States has recently demonstrated a willingness to disrupt trade agreements. Given the scale of U.S. LNG exports, foreign buyers may choose to avoid over-reliance on a single, potentially unpredictable supplier.
Canada is already shifting its ~8 billion cubic feet per day (bcf/d) of gas exports from the U.S. to LNG exports aimed at East Asia. This will further tighten the U.S. domestic market, potentially impacting prices for U.S. Gulf and East Coast LNG projects.
Meanwhile, Mexico is increasing its natural gas pipeline imports from the U.S., both for domestic use and for LNG exports via its own Pacific Coast LNG projects. A 2 bcf/d pipeline from the Permian Basin is nearing FID, with another 2 bcf/d pipeline planned. This could create additional competition for U.S. Gulf Coast projects in the Asia-Pacific LNG market.
LNG from the U.S. Gulf and East Coasts faces intense competition from other global projects:
Canada's Pacific Coast: A 5 bcf/d pipeline serving a 1.85 bcf/d LNG plant in British Columbia is set to start operations this year, with a second 1.85 bcf/d phase planned. A smaller LNG facility near Vancouver is already under construction.
Mexico's Pacific Coast: A major LNG plant sourcing gas from the Permian Basin is under development. More LNG facilities could be built after 2030.
Alaska's LNG Projects: Former President Trump is pushing a $44 billion LNG project on Alaska's southern coast. If Japan and other Asian buyers commit, 3.1 bcf/d could come online well before 2045.
Guyana, West Africa, and the Mediterranean: These regions are developing LNG projects that could compete with U.S. exports to the Atlantic Basin.
Pipeline Alternatives to Europe: The EU's reliance on LNG could decline if Russian pipelines are reactivated or if new supplies from Iraq, Iran, or Turkmenistan become available.
The European Union and the UK remain committed to reducing carbon emissions, which may put pressure on long-term natural gas demand. While LNG remains critical for energy security, renewables and hydrogen are projected to displace natural gas over time.
In Asia, the market remains in flux. Russia is pushing the Power of Siberia 2 pipeline to China, although China is demanding steep discounts. Meanwhile, Turkmenistan is debating whether to sell more gas east to China or west to the EU. Australia continues to modestly expand its LNG export capacity, providing stable competition.
Critically, LNG projects in Canada, Mexico, and Alaska can serve Asian markets more efficiently than Gulf and East Coast projects. They benefit from shorter shipping distances, lower costs, and no reliance on the increasingly expensive and congested Panama Canal. Additionally, Gulf and East Coast LNG projects face hurricane risks that could disrupt operations for months or even years.
Given these uncertainties, the massive U.S. LNG expansion proposed may face a smaller and more competitive market than anticipated. Some financial risks can be mitigated through long-term contracts, but they cannot be eliminated entirely.
Prospective investors will need to carefully weigh the potential for cost overruns, supply chain disruptions, and global competition. While LNG demand is expected to remain strong in the near term, the landscape beyond 2030 presents significant challenges for Gulf and East Coast projects.