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LNG Exports Move Closer to Reality

August 27, 2012
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A series of recent decisions by regulators and moves by operators of liquefied natural gas (LNG) facilities indicate the logjam of LNG exports may be easing.

Coming one giant step closer to the creation of the first floating liquefaction facility in the United States utilizing its Floating Liquefaction Storage Offloading (FLSO) vessel technology, Excelerate Energy reported that the United States Department of Energy (DOE) has granted the company a long-term, multi-contract authorization to export LNG to free trade agreement (FTA) nations from its Lavaca Bay LNG project.

The Lavaca Bay LNG project would be located in Port Lavaca, TX, situated between Galveston and Corpus Christi on the Texas Gulf Coast, and would be designed to export LNG to markets worldwide by 2017. Under DOE approval, The Woodlands, TX-based company would be authorized to export up to 10 million metric tons/year of LNG produced from domestic resources for a 20-year term beginning on the date of its first export.

Looking to capitalize on the United States' recent windfall of vast supplies of natural gas, Excelerate said this past spring it was moving forward with the development of the first floating liquefaction facility in the country utilizing its FLSO vessel technology (see NGI, May 21). Excelerate said it chose Port Lavaca for the site of the facility because of its direct access to the "highly liquid" South Texas natural gas market, access to the Atlantic Basin through the Gulf of Mexico and potential access to the Pacific Basin with the widening of the Panama Canal.

Even with the DOE contract in hand, the Lavaca Bay LNG project still has a way to go before crossing the finish line. The facility still requires authorization from the Federal Energy Regulatory Commission (FERC). Excelerate said it would begin the FERC pre-filing process during 4Q2012 with expected in-service in 2017.

In addition to its work on the FLSO, Excelerate is also working to increase its fleet of floating storage and regasification units (FSRU) around the world. Looking to expand its ability to offload and convert LNG from ships to pipeline-grade natural gas, Excelerate said recently that it has reached a shipbuilding option agreement with Daewoo Shipbuilding and Marine Engineering for the delivery of up to eight FSRUs between early 2015 and early 2017. The company said the agreement would give it the ability to increase its fleet of nine FSRUs as global demand for LNG import solutions continues to expand rapidly.

Golden Pass Products LLC has applied to DOE to export LNG from the Golden Pass LNG receiving terminal at Sabine Pass, TX, to FTA countries. The application joins those of several other parties to do the same. The proposed project involves construction of liquefaction and export capabilities at the existing Golden Pass LNG facility. A final investment decision will be made following government and regulatory approvals, Golden Pass said. Project shareholders include Qatar Petroleum International (70%) and ExxonMobil Corp. (30%).

The proposed project would have the capacity to send out 15.6 million tons of LNG a year. New infrastructure required to export would be on the existing property, which currently contains two berths for LNG tankers, five storage tanks and access to the Golden Pass pipeline. The expanded facility would then have the capability and flexibility to both import and export natural gas.

Applications to export LNG to FTA countries are presumed to be in the public interest and are routinely granted. Golden Pass said it also plans to apply to export LNG to non-FTA countries. DOE has more authority over these applications and is withholding further approvals until it finishes evaluating the effect exports might have on domestic gas markets. However, lawmakers have urged DOE to step up the pace of export approvals (see NGI, Aug. 13).

Ken Medlock with the Baker Institute at Rice University in Houston, said the United States would be "lucky to see more than 1 Bcf/d" of exports 10 years from now. "I don't think it's going to be a huge number," he told NGI. However, linking the United States with global gas markets would create the opportunity for global gas players to hedge some of their risk in the U.S. market (see related story).

Further north, three LNG shipments have been sent to Japan out of the Kenai LNG plant on Alaska's Kenai Peninsula in recent weeks, according to operator ConocoPhillips. The company expects to ship a total of four or five LNG cargoes to Asia this year, ConocoPhillips spokesman Natalie Lowman told NGI. The most recent cargo was loaded onto a ship that has a 125,000 cubic meter (about 4 MMcf) capacity, but whether it was filled to capacity was unclear. The news comes less than a year after ConocoPhillips secured natural gas supply for the facility and said it was in talks for spot sales of LNG to Asian markets.

In early 2011 ConocoPhillips considered mothballing the terminal after more than 40 years of selling LNG to Japan (see NGI, Feb. 14, 2011), but operations were instead extended to last October to handle a one-off cargo (see NGI, Oct. 24, 2011; Aug. 29, 2011).

"The reason that we didn't mothball the plant as planned is because of the tragic Japanese earthquake and tsunami that occurred about five weeks after we announced that we were going to mothball the plant, and [that] changed the LNG market," Lowman said. "We reached out to Japan and they said 'yes, we would like to do spot cargoes of LNG,' so we kept the plant operating in order to be able to do that."

The plant's export license is due to expire in 2013. Once the handful of spot cargoes have been delivered this year, "the future of the plant is uncertain," Lowman said. "It kind of just depends on gas supply in Cook Inlet and demand for LNG in Asia," she said.

Two potential beneficiaries of relatively cheap North American natural gas supplies, Japan and India, reportedly both have been urging the Obama administration to open LNG exports as soon as possible, according to the project manager for one of the export terminal proposals. Jordan Cove's Bob Braddock told NGI that he was aware that both Japan and India are pressing for a decision from the U.S. federal government that would allow LNG exports to their respective non-Free Trade Agreement (FTA) nations.

Earlier this year Japanese media reported that the country was appealing to the United States for LNG (see NGI, Feb. 27). China Investment Corp. (CIC) and the Government of Singapore Investment Corp. (GIC) have invested a combined $1 billion in Cheniere Energy Partners LP's Sabine Pass LNG export project in Louisiana, according to published reports last week.

But the companies aren't releasing any information about the deal. A Cheniere spokesperson told NGI that the Houston-based company "does not comment on rumors and speculation." A GIC spokesman declined to comment and CIC did not respond to a request for comments.

The Asian national companies have each invested about $500 million in Cheniere's planned LNG facility, according to a Reuters report. The information came from a source with knowledge of the matter, Reuters said.

By the end of 2017 eight new export projects could be operational with a combined capacity of 10 Bcf/d, according to analysts at Raymond James & Associates Inc. (see NGI, May 28). By Raymond James' count, there are now 14 projects to export liquefied North American gas at some stage of development.

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