O'Melveny Insights 2023

30 Outlook for Liquefied Natural Gas Industry To secure financing, developers need long-term contracts with expected revenues sufficient to cover construction costs. In the case of Port Arthur LNG, Sempra has started converting its announced heads of agreements into definitive long-term contracts, with pricing that takes into account the finalized EPC contract price. For US project developers that have already announced definitive long-term contracts, they may need to renegotiate those deals if the contract prices do not cover EPC contract costs. As projects progress, industry watchers will be interested to see final EPC contract prices and whether buyers will remain committed in the face of price negotiations or renegotiations. Multiple US LNG Export Projects May Reach the Finish Line. After finalizing EPC contracts and longterm contracts with LNG buyers, project developers face one final test before they can start construction: finalizing financing. That is no small feat, as Tellurian’s failed attempt at procuring financing for its Driftwood project in 2022 demonstrated. In September, Tellurian abandoned a plan for a shortterm debt financing and canceled two of its original long-term offtake contracts. That setback suggests that developers need longer contracts to support financing. While Tellurian’s now-scrapped contracts were 10-year deals, most definitive, long-term offtake contracts signed by other US LNG projects in 2022 have ranged from 15 to 20 years. By all market indications, the financial markets are flush with capital seeking the right investment opportunities, and multiple US LNG projects have announced their intention to finalize financing in the coming year. With appropriate structuring, the LNG industry might just see a repeat of the first wave of US LNG, with multiple projects getting the green light in 2023. O’Melveny’s Texas offices top-ranked for energy: ‘The team is not only very skillful and knowledgeable, but also has a knack for finding practical solutions.’ —Client testimonial, Chambers USA