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Cheniere's Sabine Pass on Schedule to Fulfill LNG Export Contracts by 2015

A top Cheniere Energy Inc. executive said Thursday that construction of two trains at the company's Sabine Pass liquefaction and export terminal in Louisiana is about 65% complete, putting the project on track to fulfill some of its obligations with overseas customers by late 2015.

Cheniere Energy Vice President of Supply Corey Grindal addressed a crowd on the final day of the DUG East conference in Pittsburgh, in which discussions and presentations focused heavily on the unparalleled growth in Appalachian production and what to do with the "tsunami of natural gas" supplies, as it was being referred to by many at the conference, in the coming years.

Although 17 projects have filed applications with the Department of Energy (DOE)  to export domestically produced liquified natural gas (LNG) to non-free trade agreement (FTA) countries, just seven have been approved to do so, and only one that is actually under construction, Sabine Pass, has approval from FERC to site and operate its facility (see Daily GPI, April 17, 2012).

"For the LNG business, there's a lot of skeptics out there. I can understand that because it's new, but we're going to be exporting LNG sometime by late 2015," Grinda told the crowd. "And along with some of the other facilities planned, it's going to be the pivotal point to balance all of the natural gas you've heard about over the last day-and-a-half being produced here as well as in the other shale formations across the United States."

Indeed, the Appalachian Basin has become a prolific natural gas producer. The Marcellus Shale alone has gone from producing about 1.5 Bcf/d in 2007 to roughly 15 Bcf/d this year, according to the Energy Information Administration, which also predicts that the number could reach 20 Bcf/d or more by 2030.

Grindal said Appalachia is factoring heavily into its export plans along the Gulf Coast, where it has also received approval from the DOE and the Federal Energy Regulatory Commission for an expansion at its Freeport LNG Terminal on Quintana Island, TX, and has permits pending for another liquefaction facility in Corpus Christi, TX (see Daily GPI, May 20, 2013; Sept. 4, 2012).

Cheniere is actively buying gas in the basin. Grindal said about 50% of the gas currently being purchased by the company is sourced in the Marcellus and Utica shales.

Sabine Pass is located at the mouth of the Sabine River between Texas and Louisiana. The four trains it has planned for the 1,154 acre site, which was established as an import terminal with 17 Bcf of onsite storage capacity, have been approved for a  peak day LNG production and export capacity of 2.76 Bcf/d (see Daily GPI, Feb. 20).

Grindal said most of the structural work and soil work on the first two trains at Sabine is complete, with workers now focused on loading refrigeration equipment and installing stainless steel pipe. A final investment decision will be made on Trains 5 and 6 in 2015 and will require additional approval from FERC, he added.

For now, Grindal said that every six to nine months after Sabine's first train comes into service, another train will be brought online there. At this point, the company considers that timeline crucial. Unlike some other companies that have applied to export LNG, Cheniere has assumed supply risk, meaning the company is responsible for supplying and transporting the LNG to fulfill its contracts with overseas companies, including those in India, England, Spain and Italy, among others.

"If we don't show up with the LNG when the customers schedule their boats to come in, we pay liquidated damages worldwide," Grindal said. "So we will have redundant capacity at the terminal and on the upstream with the ability to take gas from all different basins."

That means Cheniere has been heavily involved in plans to reverse interstate pipelines, spurred mainly by a surplus of natural gas in the northeast (see Shale Daily, March 12). Four pipelines will be connected to the Sabine facility, he said.

In the Utica and Marcellus, the company has a large interconnect to Texas Eastern, which currently has three major expansion projects under way to deliver gas north-to-south and Cheniere is the anchor shipper on one of those expansions in addition to the ability to access all the pipes planning to push roughly 10 Bcf of natural gas to the Gulf Coast.

Grindal joined other speakers in marveling at the sharp increase in oil and gas production from shale formations across the country. He said based on the forward production curves that were presented by some producers at DUG East alone, there would not be enough demand to consume all the gas being produced in the U.S. and said that without LNG exports it would be stuck.

FERC Commissioner Tony Clark agreed, saying the onshore renaissance has presented a "picture of a nation that is in every way more energy secure than [it] has been in decades."

He pointed to Europe, and the political events that have unfolded as a result of the impasse between Russia and Ukraine, as evidence that underscores "the economic and geopolitical potential that the U.S. has with which to offer our friends and allies an honest and predictable energy trading partner." Nowhere, Clark said, "is this possibility more evident than in the nature of the potential for the exports of liquefied natural gas."

Clark, however, said that there remains kinks in the federal approval process, the logistics of moving natural gas and the domestic acceptance of exports that will need sorting to help facilitate better geopolitical and economic gains through LNG. He said that while he didn't believe all the facilities under consideration to export LNG will be approved, regulators need to be prepared for an increase in their workload.

Last month, the DOE said it would modify its procedure for reviewing applications to export LNG and take a backseat to FERC by no longer issuing conditional authorizations to developers for non-FTA export until FERC grants siting approval, which requires a prolonged environmental assessment (see Daily GPI, May 29).

While some developers were critical of the proposed change (see Daily GPI, June 4), fearing that millions of dollars could be spent to fulfill the FERC process only to earn a rejection from the DOE -- where in some instances applications have languished for more than a year -- Clark said the change would make the process more predictable.

He said that the DOE currently has a first-come-first serve approval process, meaning that some developers clearing that agency hit a wall at FERC's case-by-case environmental assessment process with inadequate applications that create time-consuming backlogs.

"[Applications] run the gamut and that's why I think we have a process that basically works at FERC. We let each one of those applications move through on the quality or the merits of the work that has been done," Clark said. "So you get some filed that are fairly complete, a lot of groundwork has been done and there's less work that FERC staff has to do in terms of getting that application up to the standard that we require. Those can move forward on a much quicker basis internally because the quality of the work is there, while some have a lot less information on the record and they're just an incomplete application."

Clark also said that uncertainty about available capacity for pipeline reversals and a general lack of infrastructure, particularly in the Northeast, is holding more developers back from LNG exports. He added that nearly every proposed project is being challenged in courts across the country and said more work needs to be done to help judges understand that the FERC's approval of any project is "ironclad" and in the public interest.

For these reasons, Cheniere has dedicated itself to all aspects of the process, Grindal said. If all goes according to plan, the company plans to receive final FERC approval for its Corpus Christi liquefaction facility by the end of this year or sometime next, at which point it hopes to begin construction. He said two trains at that facility are nearly fully subscribed with customer contracts, including state-owned oil and gas company Pertamina of Indonesia and the Spanish utility Endesa.

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