BP plc has signed up for second train liquefaction capacity with Freeport LNG Expansion LP under a binding 20-year liquefaction tolling agreement (LTA), Freeport said last week.
BP is to take 4.4 million tonnes per annum (mtpa) at the proposed liquefaction and loading facility on Quintana Island near Freeport, TX, upon completion of the project’s second train. Last July, Freeport LNG executed LTAs with Osaka Gas Co. Ltd. and Chubu Electric Power Co. for a total of 4.4 mtpa (see NGI, Aug. 6, 2012). The Osaka Gas and Chubu Electric LTAs begin upon completion of construction of the first liquefaction train.
“The combination of BP, one of the world’s leading international oil and gas companies, with our existing customers, Osaka Gas and Chubu Electric, two of the largest natural gas and electric utility service providers in Japan, provides us with extremely strong counterparties with which to seek financing,” said Freeport LNG CEO Michael S. Smith. “With the first two liquefaction trains of the project fully contracted, we intend to approach the financing markets imminently so that we can begin construction on the initial two-train facility as soon as we receive FERC approval.”
Since the deal is a tolling agreement, Freeport LNG is not a party to the gas procurement. Smith told NGI that “clearly the lure is for them to buy gas on some Henry Hub-based index and then sell it or take it back home, as Osaka and Chubu will do, to their own markets.”
Construction start is subject to regulatory approvals that include Federal Energy Regulatory Commission (FERC) authorization to begin construction and U.S. Department of Energy (DOE) approval to export liquefied natural gas (LNG) to non-free trade agreement (FTA) countries. Freeport LNG said it is “next in line to receive DOE approval,” which would cover the project’s first two trains and allow for export to non-FTA countries upon construction completion.
“The DOE is expected to commence review of Freeport LNG’s pending non-FTA export application immediately after the period for response to the initial comments raised in respect of DOE’s 2012 LNG Export Study ends on Feb. 25, 2013,” Freeport LNG said. “Freeport LNG’s second DOE application covering up to two additional trains of production volume is fourth in line in the order established by DOE for review and processing of pending non-FTA export applications.”
FERC authorization to begin construction of the project’s first three trains is expected during the third quarter, Freeport LNG said. With this in hand, construction of the first two trains could begin during the fourth quarter.
Freeport LNG was the second export project to file at FERC and is one of eight U.S. export projects (five of them on the Gulf Coast) that have begun the FERC process. DOE previously said that in reviewing projects it would put those that had entered the FERC review process at the head of the line (see related story). Smith said this gives Freeport LNG and other similarly situated projects a big advantage.
“I think the low-hanging fruit either has been taken by Cheniere [Energy’s Sabine Pass project (see NGI, Dec. 24, 2012)] or us or will be taken by us on our third train and Sempra [Energy’s Cameron LNG (see NGI, Feb. 11)] and maybe one or two others before they’re going to find that there’s a limit to how much export from the U.S. is really achievable, at least for the first wave,” Smith told NGI. The market for LNG exported from the United States “is a lot smaller than many people believe.” It could reach 8-10 Bcf/d over about 10 years, he said.
Of the Gulf Coast projects, Sempra’s Cameron LNG appears to be the furthest along after Freeport LNG and Cheniere’s Sabine Pass, Smith said. “But the other terminals on the Gulf Coast, with the exception of [ExxonMobil’s] Golden Pass [see NGI, Oct. 15, 2012]…are nowhere near as far along in the marketing and through the FERC process,” he said.
“Now Golden Pass is a complete exception to the model that everyone in U.S. exports is pursuing. They don’t need financing; they don’t need end-users. If Exxon gets approved for exports and Exxon and Qatar say, ‘we’re building it,’ it will be built. [If] the largest corporation in the world decides to do something, they can do it.”
Freeport LNG’s first train is anticipated to begin operation about 48 months from the start of construction, with the second train in operation six to nine months after the first train, the company said. Marketing of the capacity of the third train is anticipated to be completed before year-end, with financing to be closed and construction to begin on the third train as early as late 2014.
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