US green light for Cheniere LNG exports
Department of Energy approves Sabine Pass terminal modifications
THE US moved a step closer to becoming a significant liquefied natural gas (LNG) exporter with Department of Energy approval for Cheniere Energy’s plans to modify its Sabine Pass import terminal to liquefy gas for export.
The decision could see US import-terminal operators – stung by a gas glut and depressed domestic prices as output from the country’s shale plays surges – shift their sights to lucrative Asian LNG markets. With US gas priced at almost a third of supplies to Europe and Asia, US LNG exports could help meet Asian demand.
Once modified, the Sabine Pass, Texas, terminal would become the US’ first bi-directional processing facility, capable of both importing and exporting LNG. The only other US LNG export facility, the 42-year-old Kenai, Alaska, plant, operated by ConocoPhillips and Marathon Oil, is scheduled to shut down shortly because of shrinking natural gas supplies in the Cook Inlet basin and the expiration of LNG supply contracts with long-term clients Tokyo Gas and Tokyo Electric.
Cheniere and other LNG terminal owners have already secured permits to re-export LNG offloaded at their terminals – Cheniere has approval to export up to 16 million tonnes a year (t/y). Depending on demand, it plans to build up to four, 4 million t/y liquefaction trains, one every six to nine months, beginning in 2012. Cheniere estimates construction costs at $400 per t/y of capacity, bringing total construction costs to $6 billion if all four modules are completed. The first train will begin operating as early as 2015
Supply agreements in place
In a first-quarter filing with the Securities Exchange Commission, Cheniere noted it planned to enter long-term, fixed-fee contracts for at least 3.5 million t/y of capacity per LNG train for a fee of $1.40-1.75/million British thermal units (Btu) before reaching a final decision on the trains’ development. By the end of the first quarter, the company had signed eight non-binding agreements with potential customers, representing a total of up to 9.8 t/y. More recently, it signed a memorandum of understanding to export between 1.5 million and 2.2 million t/y to Klaipedos Nafta’s proposed receiving terminal in Lithuania.
It is ironic that booming shale gas production has proved the salvation of Cheniere, which has struggled financially for several years. The surge in US shale gas output almost doomed the three-year-old Sabine Pass plant. It was one of about 20 import facilities either built or planned in the late 2000s to meet expected natural gas shortages in the US.
Shale gas not only filled the gap, but created a gas glut, pushing domestic prices so low that high-cost LNG imports lost much of their appeal. Only four of the facilities were built, bringing the country’s total to eight.
Converting the facility for bi-directional capability still requires environmental permits and authorisation from the Federal Energy Regulatory Commission, which the company expects to receive by the middle of next year.
It is understood at least six other export terminal projects are being planned.