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Cheniere Applies For Sabine Pass LNG Export Permit

In a filing with the Department of Energy's (DOE) Office of Fossil Energy, Cheniere Marketing Inc. has requested authorization to export on a spot market basis over a two year period up to 64 Bcf of liquefied natural gas (LNG) that has been imported and stored at the Sabine Pass LNG terminal in southwest Louisiana.

Cheniere expects to export the LNG to 17 countries in Europe, Asia, Central America and South America, including Mexico, China and India. Cheniere said it also anticipates loading LNG for delivery to Puerto Rico. Cheniere did not request authorization to export domestically produced natural gas or LNG.

Cheniere's request was similar to one recently filed by Freeport LNG Development LP, which asked DOE to permit it to export up to 24 Bcf of LNG to markets in Europe and Asia (see NGI, Aug. 18a). Cheniere is one of Freeport's limited partners.

Like Freeport, Cheniere said worldwide demand and relatively low prices in the United States had prompted it to seek approval to export LNG.

"Blanket export authorization would afford [Cheniere] the ability to purchase cargoes of LNG at current LNG prices with the intent that such LNG subsequently would be exported to a foreign market at a later date," Cheniere wrote in its application. "In the event that U.S. market prices were to rise to a point where domestic sale of the LNG held in storage was economic, the LNG would then be readily available for U.S. consumption."

Assuming regulatory approval, preparing the Sabine Pass or Freeport facilities for export operations would require little more than a $10,000 retrofit, according to Houston-based consultancy Waterborne Energy Inc.

The Kenai LNG terminal in Alaska is currently the only facility in North America permitted to export LNG. Kenai has been liquefying and exporting LNG from the Alaska coast for nearly 40 years. Neither Sabine Pass nor Freeport currently have liquefaction facilities and would only be able to serve as LNG storage and transit stations.

DOE recently granted Kenai an extension of its LNG export permit (see NGI, June 9). With the extension, which lasts from April 1, 2009 until March 31, 2011, ConocoPhillips and Marathon Oil Corp.'s may export up to 98 Bcf to Japan and other countries on either side of the Pacific Rim. The Japanese have been importing LNG from the Kenai terminal since 1969 and some in Alaska believe additional LNG liquefaction and exports to thirsty Asian markets should be included in the state's plans to commercialize its vast North Slope gas reserves (see NGI, May 19).

Chesapeake Energy CEO Aubrey McClendon has said his company is considering investing in LNG export facilities (see NGI, Aug. 4; May 5).

In a report issued in July, the Energy Information Administration said LNG imports to the United States through the first half of 2008 were roughly 60% below the amount received during the first six months of 2007 (see NGI, July 14).

Funds led by GSO Capital Partners LP and its affiliates recently closed a $250 million senior secured convertible loan agreement with Cheniere Common Units Holding LLC, a subsidiary of Cheniere Energy. Proceeds will be used to repay a $95 million bridge loan obtained in May, fund a reserve account for payments under Cheniere Marketing Inc.'s terminal use agreement with the Sabine Pass LNG receiving terminal, and for general corporate purposes, the company said. Moody's Investors Service changed its outlook on Sabine Pass LNG LP to "stable" from "negative" and affirmed its "B2" rating on the company's senior secured notes, due in 2013 and 2016.

"The stable outlook reflects the recently completed convertible loan financing at an affiliate of Cheniere Energy Inc., Sabine's parent, that would provide Cheniere sufficient liquidity for the next three years," said Moody's analyst Clifford Kim. "Cheniere's liquidity profile could again face significant pressure starting in the third quarter of 2011 if Cheniere's business prospects do not substantially improve over the next 18 months."

The rating agency noted a "very weak" market for U.S. LNG imports, citing growth in domestic gas production. But Moody's also said global LNG supply is expected to increase next year and in 2010 as several delayed LNG liquefaction projects come on-line.

Cheniere last month reported a second quarter net loss of more than $132 million (see NGI, Aug. 18b). As part of its restructuring, the company in June signed an LNG marketing agreement with J.P. Morgan Ventures Energy Corp., a subsidiary of JPMorgan Chase & Co. (see NGI, June 30).

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