Cheniere Plans 3 LNG Facilities Along Texas Coast

Muscling in on recent announcements by much larger U.S. energy companies, Houston-based independent Cheniere Energy Inc. said last week that it is acquiring three land lease options in Texas to develop liquefied natural gas terminals along the Gulf Coast. Though no details about the locations were disclosed, Cheniere expects each terminal to initially process 200 Bcf/year and be operational within six years.

Estimated to cost $300 million each, the receiving terminals could be construction-ready by late 2003, if the regulatory permit process takes the expected two years, said the company. Although the LNG terminals would be the first for the five-year-old oil and gas producer, CEO Charles Reimer directed the operations of Virginia Indonesia Co. (VICO) for 12 years before joining Cheniere. VICO was the major participant in the Bontang LNG project in East Kalimantan, Indonesia, considered one of the largest LNG producing facilities in the world.

"This initiative is to complement our exploration and production business," Reimer said. "We're bullish on natural gas, and we believe that prices will remain at $3.50-to-$4.00/Mcf over the long term, which makes this project economically attractive and significant to Cheniere."

The move would be a big one for Cheniere, which now focuses its activities on 3D seismic data exploration in the shallow Gulf of Mexico offshore Louisiana. Its exploration is done primarily through a 29.4% interest in privately held Gryphon Exploration Co. and its ownership of a 228-square-mile proprietary 3D project. In Texas and the adjacent West Cameron area offshore Louisiana, the company now is developing an offshore exploration program using 6,800 miles of recently licensed 3D data.

As of Dec. 31, Cheniere's proved developed reserves were 4.6 Bcf and 17.9 Mbbl, with a total of 4.7 Bcfe. Its proved undeveloped reserves were 0.6 Bcf and 3 Mbbl, with a total of 0.6 Bcfe. Overall, its total reserves were 5.2 Bcf, 20.9 Mbbl and 5.3 Bcfe.

Cheniere said the cost of finding and producing natural gas in the Gulf of Mexico is "escalating rapidly," allowing imported LNG to become a competitive supply source. A recent report by the Energy Information Administration (see NGI, April 2) noted that while "LNG is not expected to become a major source of U.S. gas supply, it does play an important role in regional markets, including New England. Gross LNG imports are projected to grow from 90 Bcf in 1998 to 810 Bcf in 2020."

In May, Deutsche Bank analysts predicted that as long as prices remain near the current level, the LNG market will play a "big role" in both Europe and the United States in the coming years. They reported that with a current growth rate of 8%, LNG will be a "key growth engine" for many of the world's majors (see NGI, June 4).

"Clearly, we must turn to foreign sources of gas to satisfy demand --- and we have to be able to transport that supply safely, economically and efficiently," said Reimer.

In about 20 years, worldwide LNG supply has grown to more than 5 Tcf, up from 2 Tcf in 1980. By 2010, announced capacity additions in the United States and abroad could increase the supply to more than 11 Tcf, he said.

Now, with 2001 only half over, Cheniere joins the list of major U.S. companies announcing LNG projects. New facilities already have been proposed by El Paso Corp., Phillips Petroleum Co., Chevron Corp., BP North America and Enron Corp. (see NGI, March 26). The only two currently operating U.S. LNG import facilities also have big plans. In February, CMS Trunkline in Lake Charles, LA said it was requesting approval to expand its terminal, which now produces up to 700 MMcf/d, to 1.25 Bcf/d (see NGI, Feb. 26). It also has expansion plans on the horizon (see related story).

Earlier this month, Cabot LNG of Everett, MA, announced it had entered into a second 20-year charter agreement with Norwegian shipping giant Bergesen for a 138,000 cubic meter LNG carrier. Cabot's first carrier agreement was completed in November 2000 and both vessels are scheduled for delivery in 2003. Primarily, both carriers will be used to deliver LNG from Trinidad and other supply sources to its new liquefaction facilities and LNG import terminal in Everett.

The only other LNG import terminals already constructed also plan to reopen. In January, Williams Cos. filed an application with the Federal Energy Regulatory Commission to reactivate LNG import services at its Cove Point terminal in Lusby, MD. Last year Sonat, an El Paso Corp. subsidiary, successfully petitioned FERC to reactivate the Elba Island LNG import terminal in Georgia (see NGI, Feb. 9).

However, Cheniere's plans would be the first announced specifically in Texas. "Texas is very appealing to us for several reasons," said Cheniere Chairman Charif Souki. "State and local governments strongly support our gas and oil efforts. As the largest domestic supplier of energy, Texas has existing infrastructure to bring natural gas to destinations north and northeast, and increasingly to the west. Its indigenous supply is decreasing while the state's additional power demand continues to grow rapidly. Further, the sites selected are ideal traffic ports for LNG tankers."

Although Cheniere declined to pinpoint locations, the Port of Houston, served by the Houston Ship Channel, is a 25-mile-long complex of diversified public and private facilities located just a few hours' sailing time from the Gulf of Mexico. The port is ranked first in the United States in foreign waterborne commerce, second in total tonnage, and eighth in the world. It also offers direct access to the many oil and gas companies with facilities in the Houston Gulf Coast region.

Dr. Michael Economides, University of Houston professor and energy expert, was one of Cheniere's advisers on the LNG proposal. He said "natural gas is at the same point today as oil as on an import/export basis in the 1970s. The challenge now is that we do not have adequate receiving facilities to keep up with the demand."

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