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Cheniere Moving Forward with LNG Export Plans

Cheniere Energy Partners LP has completed all milestones and has instructed Bechtel Oil, Gas and Chemicals Inc. to move forward with constructing the first two liquefaction trains for the Sabine Pass natural gas liquefaction project in Louisiana, the Houston-based company said.

The first liquefaction train is expected to begin operations as early as 2015, with the second liquefaction train expected to begin operations six-to-nine months later.

"The Sabine Pass LNG [liquefied natural gas] terminal will become the first facility in the contiguous U.S. capable of exporting natural gas as LNG," said Cheniere CEO Charif Souki. "Two years after announcing our plans to develop the liquefaction facility [see NGI, June 7, 2010], we will begin construction.

"In those two years, we were able to finalize long-term commercial arrangements with four global LNG buyers for over 2 Bcf/d for 20 years [see NGI, Feb. 6], negotiate a construction agreement for the first 1 Bcf/d on a lump sum basis, and most importantly work with governmental agencies at the federal, state and local level to receive all necessary permits to begin construction on a new facility with no precedent in the Lower 48" (see NGI, April 18; Jan. 2; May 23, 2011; Sept. 13, 2011).

The liquefaction facility would permit Sabine Pass LNG and Sabine Pass Liquefaction, both units of Cheniere, 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. In May FERC gave the company the go-ahead to start initial site preparation. About $2 billion of equity and $3.6 billion of debt would fund the $5.6 billion project, Cheniere said.

In May Cheniere agreed to sell $1.5 billion in newly issued CQP Class B units to investment funds managed by Blackstone Energy Partners LP and Blackstone Capital Partners VI LP (see NGI, May 21) and two Asian investor Temasek and RRJ Capital agreed to put $468 million into affiliate Cheniere Energy Inc. (see NGI, May 14). The LNG developer is using the proceeds, combined with cash on hand, to buy $500 million of equity securities to finance the project (see NGI, April 23). The Federal Energy Regulatory Commission (FERC) last month also rejected Sierra Club's request for rehearing of orders approving the Cheniere plans(see NGI, July 30).

Since approving the Cheniere project in April, DOE has put the non-FTA permitting process on hold while it assesses the impact of LNG exports on domestic gas markets. However, LNG export competition may be on the horizon for Cheniere. In June an Obama administration official hinted that more permits would be issued (see NGI, June 25), and bipartisan groups of U.S. representatives have urged the Department of Energy to expedite approval of applications to export LNG (see related story).

By the end of 2017 eight new export projects could be operational with a combined capacity of 10 Bcf/d, according Raymond James & Associates Inc. (see NGI, May 28). By Raymond James' count, there are now 14 projects at some stage of development to export North American LNG, including the existing operational terminal on the Kenai Peninsula in Alaska (see NGI, Jan. 9) and three projects proposed for British Columbia (BC), two at Kitimat and one on Douglas Island.

In addition, Freeport LNG Expansion LP recently struck 20-year liquefaction tolling agreements with Osaka Gas Co. Ltd. and Chubu Electric Power Co. Inc. covering 100% of the liquefaction capacity of the first train of Freeport LNG's propose liquefaction and LNG loading facility near Freeport, TX (see NGI, Aug.6).

Once LNG exports begin, volumes may be smaller than many expect with a modest impact on domestic gas markets, according to one global gas market expert (see related story). But linking U.S. gas markets with the world could cause Asian and European market players to take gas storage positions in the United States, he said.

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