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Annova LNG grinds forward

A recent pipeline access agreement is a step forward for the Gulf Coast LNG export project, but an FID still faces obstacles

The proposed Annova LNG export project in south Texas has taken a step forward in the race among US LNG export developers to be the next to reach a final investment decision (FID). In late January, the firm struck a deal to reserve capacity for all of its feedgas over a 20-year period through the Enbridge-operated Valley Crossing pipeline—which will connect its proposed 6.5mn t/yr liquefaction plant to the Agua Dulce gas hub.

The company has yet, though, to announce any offtake deals and has potential other obstacles standing in the way of an FID—which it nonetheless hopes to reach at the end of this year.

Annova’s progress comes as an increasingly oversupplied global market keep spot prices for the super-chilled fuel at historically low levels. While LNG demand is ultimately expected to keep growing, current conditions are unlikely to have prospective buyers putting long-term offtake contracts at the top of their agenda.

On top of this, the US-China trade war has largely locked US sellers out of the world’s biggest import growth market of the last few years—insiders have talked of fully agreed contracts being left sitting unsigned as the tariff war rumbled on. While Beijing recently reached a preliminary agreement with Washington, under which it committed to importing more US energy over the next two years, no new offtake deals have yet been announced.

With long-term contracts and, in their absence, project financing increasingly difficult to secure, developers are exploring new models that they hope will give them enough of a competitive advantage to move forward. In Annova’s case, this includes the project’s ownership structure. Utility Excelon is the majority owner in Annova, with an 80.55pc stake. Midstreamer Enbridge owns a 10.5pc interest, as well as now agreeing to secure feedgas capacity for the facility. The engineering, procurement and construction (EPC) contractors on the project—Kiewit and Black & Veatch—are also equity owners, with just over 4.45pc each.

An increasingly oversupplied global market has kept spot prices for the super-chilled fuel at historically low levels

“At Annova LNG, our equity owners include the very same experts who will design, build, operate and maintain our state-of-the-art facility throughout its lifecycle,” says Omar Khayum, Annova LNG’s CEO. “This unique structure de-risks the project for us and our buyers, as the objectives of all parties are aligned.”

The project developers also believe the deal with Enbridge to be a differentiator, giving Annova access to feedgas from multiple sources, via the Agua Dulce hub, at a lower cost than other facilities.

“We have optimised the natural gas pipeline solution from Agua Dulce to our project site to offer one of the best Henry Hub-based Fob LNG prices with a lower commodity multiplier than other US Gulf Coast projects,” says Khayum. “Annova LNG’s supply assurance adds tangible value beyond the core commodity.”

The project also hopes to leverage its location at the port of Brownsville, which benefits from “uninhibited deepwater access and close proximity to the Panama Canal”. However, Annova and two other LNG terminals proposed at Brownsville are facing stronger local opposition than some other terminals elsewhere on the Gulf Coast—from a coalition of environmentalists, shrimpers, fishermen and community groups.

Federal regulators have already approved all three terminals, though, and recently refused to reconsider their authorisation of NextDecade’s Rio Grande LNG. While the projects could yet find themselves delayed by litigation, it appears that, for Annova, securing buyers is a more pressing challenge.

“We are targeting the ‘sweet spot’ of the global LNG market–utilities and industrial customers worldwide that are direct buyers of LNG and are historically under-served or often recklessly over-promised,” says Khayum. But the project is not expected to be sanctioned until two-thirds of its 6.5mn t/yr capacity is sold.

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