The prospective liquefied natural gas (LNG) export business is alive and well, but it is not for the under-capitalized or inexperienced, according to three knowledgeable observers with perspectives from both coasts and the Gulf of Mexico (GOM) who NGI contacted earlier this month.
Stephen Davis, a Houston-based partner with the law firm of Akin Gump Strauss Hauer & Feld LLP, sees the export issue as being broader than LNG, seeking instead gas molecules that take various forms in future export markets.
Bob Braddock, the project manager for the greenfield Jordan Cove LNG import-export facility along the Pacific Coast in Oregon and a related natural gas transmission pipeline, sees new LNG projects as being overwhelming in cost ($7.5 billion) and impact on local communities. "It is imperative that the community preparation for the scale of these undertakings be done well in advance," Braddock told NGI.
Julia Sullivan, a senior policy advisor for Akin Gump's Washington, DC, office said that both the "thirst in the market" for LNG exports and the discussion it is stimulating among policy wonks and elected officials in Congress is a clear sign there is going to be more action in this space. "We have a lot of activity on LNG among our clients," Sullivan told NGI. "There are a number of very sophisticated companies that are very savvy about natural gas deals, and the fact that they think these export facilities are going to be built, fully subscribed and financed is really all I need to know."
Another knowledgeable source in Houston said Cheniere Energy Partners LP is an example of how the export push is going to be more systematically approached after the near-bankruptcy that its LNG import facility caused the Houston-based company. Earlier this month Cheniere indicated it had 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 LNG project in Louisiana, with the first liquefaction train expected to begin operations in 2015 (see Daily GPI, Aug. 13).
Unlike its import terminal, in which it kept half of the terminal's capacity and nearly went broke as a result, Cheniere is not keeping any of the design capacity in the export project, the Houston energy source said. The export facilities can't afford a lot of unused capacity, so expect them to be fully contracted, according to the source, who predicted that there will be additional announcements coming from Cheniere's two India-based export buyers -- GAIL (India) Limited and the BG Group.
Davis sees an "all-of-the-above" energy scenario developing in the U.S. gas export space. "We either are going to be having exports of LNG, or petrochemicals that are from ethane or propane that are derived from the gas stream, or we will export natural gas liquids from those streams or directly converted from gas, or it could be 'all-of-the-above,'"he said.
Both Davis and Sullivan said the most likely export facilities will be at existing import sites, particularly along the GOM, and perhaps on the East Coast. "I don't know that all of the projects have the same viability," Sullivan said. "There is a wide range among the applicants [for export permits]."
Braddock said the West Coast has some shipping advantages for the Asian market and that the greenfield-brownfield differences among prospective export projects can be overstated.
"Yes, it is true greenfield projects are facing higher costs, but even the previously constructed LNG import projects are not immune to cost escalation since the original important investments account for less than 30% of the cost of the export facility," Braddock told NGI. In addition, "because shipping costs from the North American West Coast are less than half the cost of shipping to Asia from the Gulf, West Coast facilities can absorb a high investment cost than their GOM counterparts and still be competitive in delivering LNG to Asian customers."
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