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LNG Export Moves: Sabine Pass(es); Jordan Cove Dinged; Sempra Partners

For those keeping score of the U.S. liquefied natural gas (LNG) export race, last week saw front-running Cheniere Energy move farther ahead, Sempra Energy expand its roster with some Japanese imports, and backers of Oregon's Jordan Cove import-export project take a time out and drop its import plans.

Play started last Monday when the Federal Energy Regulatory Commission (FERC) approved a $4.5-5 billion proposal by Cheniere Sabine Pass Liquefaction LLC and Sabine Pass LNG LP to site, construct and operate facilities to liquefy domestic natural gas for export to markets worldwide. It is FERC's first authorization of a project that would export liquefied natural gas (LNG) from production resources within the United States.

The next day San Diego-based Sempra's LNG unit said it had signed commercial development agreements with Mitsubishi Corp. and Mitsui & Co. Ltd. to develop and construct Sempra's proposed $6 billion liquefaction facilities at its Cameron LNG import terminal site in Hackberry, LA. Under the deal, Sempra would negotiate tolling agreements with the two Japanese giants for two-thirds of the facility's projected capacity.

In between those two milestones, the project manager for the Jordan Cove project along the south-central coast of Oregon told NGI late last Monday that he was surprised by FERC's move earlier that day to vacate the project's 2009 conditional approval to build an LNG import terminal and connecting 230-mile transmission pipeline. However, Bob Braddock, the vice president and project manager, said he understands that FERC was uncomfortable with having the import permits still alive when Jordan Cove's sponsors had told regulators they had no intention of building the import facility before getting the necessary permits for exporting LNG.

Those three "strikes" in less than 48 hours stirred up the LNG export landscape, but did not alter Cheniere's lead position ahead of the pack. For Sabine Pass, FERC approval under Section 3 of the Natural Gas Act [CP 11-72-000] comes after U.S. Department of Energy (DOE) authorization for the companies' plans to export the commodity for a 20-year period to all Free Trade Agreement (FTA) and non-FTA nations. Other projects seeking authorization to export to non-FTA countries are having to wait until DOE further evaluates the market impact of exports (see NGI, April 2a).

FERC ordered the companies to complete construction and have the proposed facilities available for service within five years of the date of the order. At the same time last Monday, Cheniere Energy Partners LP said eight financial institutions have stepped up to help finance the project.

Sabine Pass LNG and Sabine Pass Liquefaction propose to construct and operate liquefaction and related facilities that would enable the companies to liquefy and export up to 2.2 Bcf, or 16 million metric tons per year, of domestically produced gas. The project would be sited at Sabine Pass' existing LNG import terminal in Cameron Parish, LA.

The project would be built in two stages, each consisting of two LNG process trains with a liquefaction capacity of an estimated 4 million metric tons per year. Each train would contain gas treatment facilities, gas turbine-driven refrigerant compressors, cold boxes and heat exchangers for cooling and liquefying natural gas, waste heat recovery systems, fire and gas detection and safety systems, among other facilities. The project would involve the permanent use of an additional 191 acres within the existing Sabine Pass terminal and would use five existing LNG storage tanks at the site. No additional marine facilities are required.

The project would enable the terminal to receive and process an average of 2.6 Bcf/d, including fuel and inerts such as carbon dioxide and water. Sabine Pass would continue to provide import, regasification and re-export services, as requested, to customers under existing terminal use agreements. The applicants said there is no physical limitation to simultaneous operation of the existing regasification and proposed liquefaction capabilities.

Sempra said its completed facility would include three liquefaction trains with a total export capability of 12 million metric tons per year of LNG, or the equivalent of 1.7 Bcf/d. Construction is expected to start late next year with operations beginning in late 2016.

The liquefaction facility will use Cameron LNG's existing facilities, including two marine berths capable of accommodating Q-Flex sized LNG ships, three LNG storage tanks of 480,000 cubic meters and vaporization capability for regasification services of 1.5 Bcf/d. Sempra said the majority of the new facilities $6 billion price tag will be project financed with the rest coming from the project partners in a joint-venture arrangement.

The commercial development agreements announced Tuesday bind the parties to fund all development expenses, including design, permitting and engineering, along with negotiating 20-year tolling agreements based on agreed-upon terms outlined in the commercial development agreements. Each tolling agreement would be for 4 million metric tons per year. The remaining 4 million metric tons per year will be negotiated with other parties, Sempra said.

For Jordan Cove, Braddock said in essence his backers did not mean to say the project would never build an import facility in asking for pre-filing status (and getting it) to pursue a permit to build an export liquefaction facility. In taking its action, however, FERC said Jordan Cove had indicated "current market conditions" precluded it from building the import terminal.

"The subtlety is that we wanted to build an export terminal ASAP and retain the right to add import capability if the market shifted," Braddock said. "FERC obviously didn't want to have us in a position where we could be in an either/or situation." Longer term, if a market need for an import facility re-emerges, Jordan Cove's backers may submit a new application for an LNG import facility, FERC said.

Braddock said he interpreted this to mean that "FERC doesn't want to have the contingent import certificate hanging out there when we [Jordan backers] were very explicit in stating we had no near-term plans to build import facilities." With the refiling for the export certificate, FERC had an opportunity to "clean up a lot of loose ends," he said. "I think FERC has finally established some clarity in how they are going to handle projects such as ours."

As these three separate export developments unfolded, the general political question of U.S. gas exports driving up domestic gas prices for American consumers and businesses was raised by the American Public Gas Association (APGA) and recognized in FERC's Cheniere decision.

"The concerns expressed by the APGA that the exportation of domestically produced natural gas will have adverse implications for domestic consumers of natural gas, for U.S. energy supply, and for national security, all relate directly to impacts associated with the exportation of the commodity natural gas, rather than to any impacts that would be associated with the export facilities used to accomplish the exports," FERC said in the order. According to FERC, the Secretary of Energy has not delegated to the Commission any authority to approve or disapprove the import or export of the commodity itself.

FERC said the project can be constructed and operated safely and with minimal environmental impacts. It adopts FERC staff's recommendations in its December 2011 Environmental Assessment of the project and will require the applicants to adhere to the 55 mitigation conditions detailed in the report (see NGI, Jan. 2).

The joint lead arrangers assisting with arrangement of up to $4 billion of debt facilities are The Bank of Tokyo-Mitsubishi UFJ Ltd., Credit Agricole Corporate and Investment Bank, Credit Suisse Securities (USA) LLC, HSBC, J.P. Morgan Securities LLC, Morgan Stanley, RBC Capital Markets, and SG Americas Securities LLC. Proceeds are to be used to pay for costs of development and construction of the liquefaction project, to fund the acquisition of the Creole Trail Pipeline from Cheniere Energy Inc. and for general business purposes.

"Obtaining financing is one of the last steps to complete before proceeding with the construction of the first two liquefaction trains being developed at the Sabine Pass LNG terminal," said Cheniere CEO Charif Souki. "We have engaged an experienced group of financial institutions as our core banking group and look forward to completing the financing for the project in due course."

Cost before financing for the first two trains of the liquefaction project is estimated at $4.5-5 billion and is expected to be funded from a combination of debt and equity. On the contracting front Cheniere has been making steady progress. It has inked four contracts to supply LNG to units of BG Group, Spain's Gas Natural Fenosa, Korea Gas Corp. (Kogas) and Gail (India) Ltd. for a total of 16 million metric tons per year capacity of the 18 being developed at the terminal.

At a financial analysts' conference hosted by Sempra in late March, COO Mark Snell talked about Sempra seeking "commercial development agreements" with customer-partners by the end of the second quarter. Snell described the partners as committing to the Cameron facility and to not negotiating with other terminals, along with funding pre-filing costs on an equal basis with Sempra and eventually signing 20-year tolling agreements with the facility (see NGI, April 2b).

In January Sempra's Cameron facility gained DOE approval to export up to 12 million metric tons per year of domestically produced LNG to all current and future free trade agreement nations. Authorization to export LNG to countries with which the United States does not have a free trade agreement is pending review by DOE, Sempra said.

Braddock said he was unconcerned about having to go back through the full application process for both the export facilities, including the marine docking infrastructure, which won't really change, and the Pacific Connector pipeline, including environmental impact statements (EIS) on all of the components. Just last month, Braddock had told NGI the environmental work on the docking facilities and the pipeline would not have to be redone (see NGI, March 26).

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