Sabine Pass Liquefaction LLC made “significant progress” on its liquefied natural gas (LNG) terminal project in 2011, but that wasn’t enough to keep red ink from marring Cheniere Energy Inc.’s bottom line, the company said Friday.

Sabine Liquefaction is planning to construct facilities capable of producing 9 million metric tons per year of LNG in the first phase of its project and selling 7 million metric tons per year of the production under long-term agreements.

Last month Cheniere’s Sabine Pass Liquefaction LLC entered into an LNG sale and purchase agreement (SPA) with Korea Gas Corp. (Kogas) under which Kogas agreed to purchase 3.5 million tons per year of LNG upon the commencement of train three operations at its planned gas liquefaction facility in Louisiana (see Daily GPI, Jan. 31). Under the SPA, Kogas will purchase LNG on a freight on board basis for a price indexed to the Henry Hub plus a fixed component. Kogas was the project’s fourth foundation customer.

A free trade agreement (FTA) with South Korea, which does not currently receive domestically produced natural gas from the United States, has been ratified by both the U.S. and South Korean legislatures but has not yet entered into force. Sabine Pass is one of several liquefaction and export projects that have received approval to export to FTA countries from the U.S. Department of Energy (DOE). It is the only project, so far, to receive approval for exports to non-FTA countries as well (see Daily GPI, Jan. 23).

Sabine Liquefaction previously entered into three LNG sale and purchase agreements: a deal with a unit of BG Group plc, which was recently expanded (see Daily GPI, Jan. 27), one with Gas Natural Fenosa (see Daily GPI, Nov. 22, 2011) and an agreement with Gail (India) Ltd. (see Daily GPI, Dec. 13, 2011).

Bechtel Oil, Gas and Chemicals Inc. last year contracted to provide engineering, procurement and construction of the first two liquefaction trains at the Sabine Pass LNG terminal in Cameron Parish, LA (see Daily GPI, Nov. 15, 2011). The contract was worth $3.9 billion. Total expected cost for the project before financing costs is estimated at $4.5 billion to $5 billion.

“Sabine Liquefaction is advancing towards making a final investment decision on the first two liquefaction trains, which is subject, but not limited, to obtaining regulatory approval from the Federal Energy Regulatory Commission and obtaining financing,” Cheniere said Friday. “Sabine Liquefaction estimates that the costs to construct the first two liquefaction trains will be approximately $4.5-$5.0 billion before financing costs. Sabine Liquefaction expects to finance the first two liquefaction trains with a combination of debt and equity. Construction of the first two liquefaction trains, which will be financed with a combination of debt and equity, is expected to begin in the first half of 2012, Cheniere said.

Houston-based Cheniere Energy Inc. reported a net loss of $57.8 million (minus 66 cents/share) in 4Q2011, compared with a net loss of $86.1 million ($1.51/share) in 4Q2010. For the full year 2011, the company reported a loss of $198.8 million ($2.60/share), compared with a loss of $76.2 million ($1.37/share) in 2010. The 4Q2011 and full year 2011 losses were primarily due to increased development expenses and general and administrative expenses associated with the Sabine LNG project, the company said.

Overall, DOE has received applications to export 12.33 Bcf/d to FTA countries and 12.51 Bcf/d to non-FTA countries. The amounts are not additive. A number of the applications for exports to FTA countries have been approved almost automatically because those are governed by treaty. However, since there are only a limited number of FTA countries, it is the approval for exports to non-FTA countries that can make or break a project.

DOE has placed requests for future exports of LNG on hold until it can assess their impact on the domestic price of natural gas, Energy Secretary Steven Chu recently told a Senate panel (see Daily GPI, Feb. 17).

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