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Feds approve Cheniere’s plan to export natural gas

imageApril 16, 2012 at 6:01 pm
by Jennifer A. Dlouhy

Houston-based Cheniere Energy on Monday cleared the final major hurdle to exporting natural gas when federal regulators approved the firm’s plan to build a plant in southwest Louisiana for liquefying the fuel.

The decision by the Federal Energy Regulatory Commission puts Cheniere on track to convert its existing Sabine Pass terminal for receiving liquefied natural gas by 2015 — a timeline that would make it the first LNG export facility in the lower 48 states. One operates now in Alaska.

The company aims to export up to 3.5 million tons per year from the facility in Lake Charles, La. Cheniere plans to build the liquefaction plant in two stages, adding 191 acres to the existing terminal’s space. The facility would still be able to receive liquefied natural gas from tankers.

“Obtaining approval from the FERC is one more milestone for our liquefaction project,” said Cheniere CEO Charif Souki. “We will now finalize the financing arrangements in order to commence construction.”

About half a dozen other companies, including Texas-based Freeport LNG, also are pursuing exports to take advantage of the glut of natural gas produced in the U.S. using horizontal drilling and hydraulic fracturing techniques that free hydrocarbons from dense shale rock formations.

Exports would allow natural gas producers and processors to capitalize on higher prices globally compared to the United States. In the U.S. Monday, natural gas futures settled just over $2 per million British thermal units after hitting 10-year lows last week.

In Cheniere’s case, the strategy is a bid to put its receiving terminal to work. The Sabine Pass terminal went online in 2009, just as U.S. natural gas production surged and killed the need for LNG imports.

When natural gas is cooled to 256 degrees below zero it becomes a liquid that tanker ships can transport. At its destination it is converted back into gas. Cheniere’s Sabine Pass terminal is outfitted with regassification and storage equipment now.

In approving Cheniere’s liquefaction plant plans, FERC also could also give a boost to U.S. producers with big natural gas portfolios.

But a rise in natural gas prices would increase consumers’ monthly bills and also would be bad news for chemical manufacturers that use natural gas as a building block to create other products.

Congressional Democrats have proposed legislation that would ban new LNG exports. Rep. Ed Markey, D-Mass., who is pushing a ban, said the expert terminals would mean sending U.S. natural gas to China and Europe 00 and “exporting our manufacturing jobs abroad along with the fuel.”

“America should exploit her competitive advantage with lower natural gas prices to create jobs in the United States, not export natural gas to create more profits for oil and gas companies,” Markey said.

And environmentalists have asked top Obama administration officials to require a broader review of the consequences of the surge in natural gas drilling that probably would result from selling the fuel overseas.

Critics fear hydraulic fracturing can contaminate water supplies and cause localized earthquakes. Sierra Club Executive Director Michael Brune said in a statement Monday that exports would increase production and hydraulic fracturing, “making a dirty fuel more dangerous and putting more American families in at risk.”

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Will the US Become the World’s Largest Exporter of LNG?

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Sabine Pass Liquefied Natural Gas (LNG) Terminal, Cameron Parish, Louisiana. LNG ship, Celestine River, moored at the unloading berth of Cheniere Energy's $800M terminal following her maiden voyage with the project's first cargo. Image: Bechtel

 

By John R. Siegel

(Barrons) By 2017 the U.S. could be the largest exporter of liquefied natural gas in the world, surpassing leading LNG exporters Qatar and Australia. There is one big “if,” however. America can produce more gas, export a surplus, improve the trade deficit, create jobs, generate taxable profits and reduce its dependence on foreign energy if the marketplace is allowed to work and politics doesn’t get in the way.

In May 2011 Cheniere Energy received an Energy Department license to export LNG from its Sabine Pass LNG import terminal in Louisiana. Cheniere subsequently reached long-term deals with the U.K.’s BG Group, Spain’s Gas Natural and India’s GAIL. Cheniere is targeting operation in 2016 and plans to export up to 730 billion cubic feet of LNG annually, roughly 3% of current U.S. gas production.

Sabine Pass originally was built as an import facility to alleviate projected U.S. gas shortages. Shale-gas technology changed that assumption radically. Now Sabine Pass is attractive because it already possesses much of the infrastructure for an export plant: LNG storage tanks, gas-handling facilities and docking terminals. Only a liquefaction plant is needed to convert natural gas into LNG. Overall, Cheniere can create its export terminal for half the investment required for a new one.

With world oil over $100 per barrel, equivalent to $17 per million BTUs of gas, versus domestic natural gas at $2.10 per million BTUs, the opportunity is obvious: Cheniere can deliver its gas to Asia or European customers well below current market prices.

Six developers with existing import terminals are following the Sabine Pass model. And Cheniere has another project in Corpus Christi. With the expansion of the Panama Canal, Gulf LNG projects can economically target the lucrative Asia market. By 2017, the U.S. could be exporting upwards of 13 billion cubic feet of LNG per day.

But exporters must overcome growing opposition to LNG exports by environmentalists and industrial users of natural gas. Exporters must also get multiple permits from environmentally conscious federal officials. And Rep. Ed Markey (D.-Mass.) has proposed legislation to bar federal approval of any LNG export terminals until 2025. Those who most fear global warming don’t want anyone anywhere to use more fossil fuel, even “cleaner” natural gas.

It is uphill for the anti-gas crowd. High oil prices are driving a transition to natural gas, even as fuel for trucks and cars. In the U.S., the T. Boone Pickens Plan would displace gasoline and diesel fuel for compressed natural gas in large trucks. Pickens estimates savings of two million barrels per day of oil imports if the nation’s fleet of 18-wheelers converts to CNG. The Pickens Plan might fail legislatively because it calls for subsidies to fuel the transition. But if CNG’s nearly $2-per-gallon price advantage over gasoline continues, the concept will evolve via natural market forces, as it should.

THE ENERGY DEPARTMENT SAYS natural gas has grown its market share in the U.S. in the past three years from 28% to 30%. Globally, the trend is similar, and LNG is integral to the global supply chain.

Despite the recession, global LNG demand has been growing at a 6% to 8% annual clip for the past 10 years. When demand collapsed in 2009, prices in Asian markets fell 50% to about $5 per million BTUs. But the price drop was also driven by the rapid growth in U.S. shale gas. U.S. natural-gas supply — flatlined for a decade at 19 trillion to 20 trillion cubic feet annually — increased 15% in the past three years due to the shale-gas revolution. Technology advances created a supply perturbation. As U.S. gas prices plunged, LNG cargoes bound for the U.S. had no market.

Global LNG markets are growing again. By late 2010, the main Asian consumers — Japan, Korea and Taiwan — were seeking more LNG, while new customers such as Thailand were entering the market. The Japan tsunami put a call on LNG imports to supplant Japan’s nuclear shutdowns, and with increasing demand, Asian markets rebounded to the $15-per-million-BTU range. After the tsunami, Germany plans to close its nuclear plants. Most of Germany’s (and all of Europe’s) new supply will be gas-fired. Given the choices, would Europe rather grow its gas supply from Russia, North Africa or the U.S.? The policy implications should be obvious, even to the U.S.

Estimates of the job benefits from U.S. LNG projects depend on a variety of assumptions. Roughly 25,000 direct construction jobs would be created if all the projects are built. Increasing the U.S. natural-gas production base by another 13 billion cubic feet might translate to 450,000 direct and indirect jobs and $16 billion in annual tax revenue for federal and state coffers.

It’s easier to forecast improved trade balances. Exporting 13 BCF per day of LNG could generate about $45 billion annually. Reaching Pickens’ goals could offset another $70 billion annually of oil imports.

Exporting energy, however, rubs a lot of people the wrong way. Pickens wants cheap natural gas for his 18-wheelers and opposes LNG exports. Industrial gas users argue that a vibrant LNG industry would propel domestic gas prices higher. A study by Deloitte said that exporting six 6 BCF per day of LNG would raise wellhead gas prices by 12 cents per million BTU (about 1% on a retail basis). Advocates of “energy independence” argue that exporting LNG would tie U.S. natural gas prices to global markets.

The Energy Department’s Office of Fossil Energy is considering whether exporting LNG is in the public interest. In the meantime — shades of Keystone XL — the department has effectively put a moratorium on new LNG export licenses.

Energy’s decision-making process balances the extent to which exporting LNG drives up prices with the economic benefits of increased production and energy exports. The price assessment comes at a time when U.S. gas fetches the same price in constant dollars as it did in 1975. Producers are now shutting down production and lowering exploration budgets. The shale-gas “job machine” is now in reverse.

Energy’s price study, released in January, found that exporting six BCF per day would increase wellhead prices by 50 to 60 cents per million BTU by 2026. The study has a myriad of assumptions and scenarios, the most fundamental of which is future gas production. In 2007, Energy predicted the U.S. would be importing 12.3 BCF a day of LNG by 2030 due to falling gas production. But primarily because of the shale-technology phenomenon, wellhead prices have tumbled from $6.25 six years ago, even as demand increased by eight BCF per day. That demand figure is larger than the six BCF assumption of the Energy study. The Energy Department is not particularly to blame, as most forecasters got it just as wrong on gas production.

Ideally, the Energy Department should move quickly and recognize free-market principles. And the administration could send a clear policy signal that natural gas is integral to the country’s energy future and that exporting LNG is good economics and consistent with its 2010 State of the Union address to double U.S. exports over five years and create two million new jobs. But Energy is moving slowly, and administration signals on natural gas are mostly lip service. The economic-benefits study should have been done by the end of March. But last week, Energy delayed its release until late summer, and said there is no timeline to review results and develop policy recommendations. Translation: after the election.

While we are fantasizing, the government could stop singling out the job-creating energy industry for higher taxes, emphasize cost/benefit analysis before adding further regulation to energy production, and get out of the business of regulating LNG exports altogether, which smacks of protectionism. To that end, should we also give veto authority to the Agriculture Department over grain exports (to lower corn prices) and the Commerce Department over auto, airplane and smartphone exports?

JOHN R. SIEGEL is the president of J.J. Richardson, a registered investment advisor that manages a hedge fund in Bethesda, Md.

Dow Jones & Company, Inc.

By gCaptain Staff On April 8, 2012

Blackstone to Invest $2 Billion in Cheniere Energy in Bet on LNG Expansion

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By Jim Polson – Feb 27, 2012 7:49 AM CT

Cheniere Energy Partners LP (CQP) said Blackstone Group LP (BX) agreed to invest $2 billion toward construction of a $5 billion natural-gas export terminal.

The financing is a “significant milestone” toward Cheniere’s plan to build the plant, Chairman and Chief Executive Officer Charif Souki said in a statement today. If built, the plant would be the first constructed in more than four decades to export U.S. natural gas by ship.

Cheniere Energy is seeking final approval from the Federal Energy Regulatory Commission for the plant, which would liquefy gas for export from its existing import terminal in Cameron Parish, Louisiana. The Houston-based company obtained Energy Department approval to export after U.S. production of the fuel surged from hydraulic fracturing.

“Obtaining this financing will be a significant milestone for the advancement of construction for the first two liquefaction units,” Charif Souki, chairman and chief executive officer of Cheniere Energy Partners and its parent, Cheniere Energy Inc. (LNG), said in today’s statement.

The Blackstone entities have agreed to buy 111 million new senior subordinated paid-in-kind units for $18 billion each, according to the statement. Final terms are contingent on Cheniere securing debt financing.

Starting Construction

Cheniere expects to obtain the remaining financing by March 31 and to begin construction by June 30, according to the statement.

The units that Blackstone is buying will pay 4.2 percent interest quarterly and convert to partnership common units once the first two sections of the plant begin commercial operation. Cheniere Energy Partners will use cash from the sale to buy the pipeline that connects the terminal to the U.S. gas pipeline network from Cheniere Energy Inc., according to today’s statement.

The announcement was made before regular trading began on U.S. markets. Cheniere Energy Partners rose 6.7 percent to $22.30 at 8:46 a.m. in New York. Cheniere Energy Inc. rose 17 percent to $16.42.

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Total Concerned With Possibility that Sabine Pass LNG Export Permit Could Be Rescinded

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Posted: December 21, 2011

A report in “Poten & Partners – LNG in World Markets” suggests that Total remains interested in an LNG export deal with Cheniere Energy at the Sabine Pass terminal, but that the French company is concerned about contractual provisions that would require Total to pay a fixed charge for two years following declaration of force majeure. According Platts LNG Daily [subscription required], force majeure provisions would apply if both of Cheniere’s LNG export authorizations are revoked.

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USA: Societe Generale Says Cheniere Can Make Sabine Pass Export Decision After Fenosa Deal

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Societe Generale today said that Cheniere Energy can take a final investment decision on phase 1 of its Sabine Pass LNG export project after it has yesterday signed a supply deal with Gas Natural Fenosa, Bloomberg reported.

This latest deal should allow construction of the liquefaction facilities, two trains capable of producing up to 9 million tons a year, at Sabine Pass to commence in 2012”, Societe Generale said in a report.

Gas Natural Fenosa has yesterday agreed to buy 3.5 million tonnes per annum (mtpa) of LNG from Cheniere Energy. The first LNG deliveries are expected to commence in 2016.

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Lithuania: Cheniere Eyes LNG Exports by 2015

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U.S.-based Cheniere Energy plans to export liquefied natural gas (LNG) by 2015 and hopes to take a stake in a floating LNG terminal in Lithuania.

The Baltic state, which joined the European Union and NATO in 2004, depends 100 percent on Russian gas supplies, and in a move to diversify it plans a floating terminal to handle 1.5-2.0 billion cubic metres of LNG per year.

We expect to start (LNG export) operations by late 2015 … and we have a high degree of confidence that we can meet these timelines, and look forward to continuing negotiations with Klaipedos Nafta to supply Lithuania with LNG,Helena Wisden, senior trading manager at Cheniere Energy said at a conference in Vilnius, Lithuania, on Thursday.

Lithuanian government-owned oil and gas company Klaipedos Nafta says it aims to lease a floating storage and regasification unit (FSRU) of at least 130,000 cubic metres of LNG under long-term contract or acquire it under a build-operate-transfer transaction.

Energy minister Arvydas Sekmokas said during the same conference that the government hoped to connect the LNG terminal to the grid in 2014.

Houston-based Cheniere Energy is planning to export U.S. LNG from its Sabine Pass terminal in Louisiana by 2015, and in October signed an $8 billion deal with Britain’s BG Group , a leading LNG trader, under which Cheniere Energy will supply BG Group with gas to ship across the globe.

Sabine Pass will have an initial capacity to export 9 million tonnes per year, and plans to sell the LNG for 115 percent of U.S. benchmark Henry Hub prices, plus a premium ($2.25 for BG Group).

Wisden said at current prices an average-sized LNG cargo was  worth $35 million.

Cheniere Energy said in May that it was considering taking a minority stake in Lithuania’s LNG terminal, which is being developed by Klaipedos Nafta.

U.S. TO BECOME NET GAS EXPORTER

Cheniere’s Wisden said that she expected the United States to become a net gas exporter by the middle of the decade, and that exports were the only way to sell the large amounts of gas produced in the country.

“Gas demand in the U.S. cannot keep up with production, and we see LNG exports as the only way to take all that gas,” Wisden said.

Wisden said that around 15 percent of global LNG supply was now traded on spot markets (or 200 million tonnes a year).

(reuters)

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USA: Total Close to Sign Sabine Pass LNG Deal

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French oil and natural gas major Total is close to signing a firm long-term sales agreement with Cheniere Energy to lift 3.5 million tonnes per annum (mtpa) of LNG from its Sabine Pass liquefaction project, according to sources close to the deal.

The structure of the deal is understood to be virtually identical to Cheniere’s 20-year sales and purchase agreement signed with BG Group last week, the first firm offtake deal signed by the project. Under that agreement BG will pay the US developer a fixed take-or-pay fee of $2.25/MMBtu to cover the procurement, liquefaction and loading costs at the Sabine Pass plus an interruptible 115% of US Henry Hub natural gas futures fetching fee paid to Cheniere to provide free on board (FOB) cargoes.

Total is also understood to be taking the commercial export agreement one step further by assuming an ownership stake in Cheniere’s Sabine Pass Liquefaction company. Specific terms of the equity stake were undisclosed.

Bringing an equity partner into the project has been seen as crucial for Cheniere if it is to secure its financial future and reduce its $3.14bn debt, which includes $2.2bn specifically related Sabine Pass.

While credit rating agency Standard & Poors (S&P) called Cheniere’s deal with BG a “significant milestone” in its efforts to generate future cash flows, it has reaffirmed its CCC+ junk-status rating with a negative outlook.

Assuming its current liquidity does not materially improve, Cheniere will not be able to make its 2012 maturity payments,” S&P said in a report released on Monday.

The company must generate significantly more liquidity to avoid further credit deterioration or default. We believe its options include further asset sales and terminal use agreements (TUAs), incremental LNG marketing activity, equity offerings, and debt restructuring.”

Closing in on sales threshold

A firm 3.5mtpa sales commitment from Total would bring Cheniere to the 7mtpa threshold, a figure that chief executive Charif Souki told ICIS Heren last week was the target for moving forward with the first phase of the liquefaction project.

Phase One at Sabine Pass is planned for two liquefaction trains of 4.5mtpa capacity each, with Cheniere indicating that it will retain and market the remaining 2mtpa.

Cheniere and Total both declined to comment when contacted to confirm the deal.

Total is already an import capacity holder at Sabine Pass where it has 1 billion cubic feet/day – 0.2 million cubic metres/day – of regasification capacity as part of 20-year terminal utilization agreement.

The agreement with Cheniere follows Total’s declaration last week that the company has been studying the possibility of exporting US gas but provided no additional details.

Total secured a firm upstream US unconventional gas presence in December 2009 when it purchased 25% of Chesapeake Energy’s portfolio in the Barnett Shale Basin in Texas.

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Lithuania: Klaipedos Nafta Receives Three Bids for LNG FSRU

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Lithuanian majority state-owned oil terminal Klaipedos Nafta has received three proposals to supply it with an offshore liquefied natural gas (LNG) terminal, the company said on Wednesday.

It has said it aims to lease a floating storage and regasification unit (FSRU) of at least 130,000 cubic metres of LNG under long-term contract or acquire it under a build-operate-transfer transaction.

Klaipedos Nafta, which is in charge of the project, said on Wednesday it would review the proposals and would invite those meeting the qualification requirements to hold negotiations.

The company did not disclose the names of three bidders.

U.S.-based Cheniere Energy , which wants to supply Lithuania with LNG, was reported in May to have expressed interest in taking a part in the Lithuanian terminal project.

The government hopes that the LNG terminal, estimated to cost about a billion litas ($400.3 million), would help to cut energy dependence on Russia’s Gazprom , now the sole supplier of gas to the Baltic state, and reduce prices it pays for gas.

The final deal on the FSRU procurement is expected to be signed by the end of the year.

(reuters)

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