US LNG export stampede gains momentum

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The race to export LNG from the United States is picking up pace with several announcements in recent weeks. In our last issue we reported that the Lake Charles LNG project had received approval to export LNG to countries with which the US does not have a Free Trade Agreement (FTA) and had awarded a contract for front-end engineering and design (FEED) to Technip. Since then the Department of Energy (DoE) has awarded a fourth non-FTA export approval, this time to the Dominion Cove Point project. Meanwhile, Freeport LNG, which already has non-FTA approval for two trains, has sold out all the capacity in its third train and is actively considering constructing a fourth.

Surprise, surprise: The non-FTA export approval for Cove Point is particularly interesting, coming so soon after the Lake Charles one. The interval was just over a month – which took most observers by surprise. At that rate we could see another three licence determinations before the end of year, which would be warmly welcomed by all the projects still stuck in the queue.

The Cove Point approval for 0.77 Bcf/d takes the total volume of gas approved for LNG exports to non-FTA countries to 6.4 Bcf/d, taking it above the psychologically significant 6 Bcf/d threshold. That was the lower limit considered in a study by the Energy Information Administration published as part of the process of studying the economic impacts of large-scale LNG export from the US.

Commentators are now starting to wake up to just how big an LNG player the US could become, as soon as the end of this decade, potentially rivalling Qatar and Australia as the nation with the largest LNG production capacity in the world. How much of that capacity actually ends up being utilised is another question entirely.

Fierce opposition: The announcement galvanised the Sierra Club – an influential environmental organisation fiercely opposed to large-scale LNG exports – into issuing a statement claiming that: “LNG export is nothing but a giveaway to the dirty fossil fuel industry, at the expense of everyday Americans.”

It continued: “The Sierra Club has been granted party status in this docket, and will hold DoE to its commitment to fully review environmental issues before deciding whether to issue final authorisation. We will also monitor all other permits and approvals that the Cove Point Facility will require, and will take action as necessary.  Additionally, Sierra Club continues to seek enforcement of a decades-old agreement between the Sierra Club and Dominion Cove Point LNG which clearly prohibits expansion of this facility to allow for exports.  The Sierra Club intends to hold Dominion accountable for complying with the commitments it made to protect the Cove Point environment."

In other words, the Sierra Club plans to do all it can to de-rail the project if at all possible.

Many strengths: That will not be easy, given that the project has a lot going for it:

  • It has sold all its capacity to Pacific Summit Energy, a US affiliate of Japanese trading company Sumitomo Corporation, and GAIL Global (USA) LNG, a US affiliate of GAIL (India). Sumitomo in turn has announced agreements to serve Tokyo Gas and Kansai Electric Power.
  • It has awarded an engineering, procurement and construction (EPC) contract to IHI/Kiewit Cove Point, a joint venture between IHI E&C International Corporation of Houston and Kiewit Corporation of Omaha, following completion of FEED.
  • It submitted its formal application to the Federal Energy Regulatory Commission (FERC) in April and can expect a decision next year.
  • It will be a conversion of an existing regasification project which already has storage tanks and shipping facilities. It will therefore be relatively cheap at an estimated cost of $3.4-3.8 billion for 5.25 mtpa of capacity. Cost per tonne per year of capacity will be an impressively low $685.

Cove Point regasification plant

COVE POINT TODAY – The liquefaction project will be a conversion of the existing regas facility shown above – and so will be relatively cheap. (photo courtesy of Dominion)

Freeport considering fourth train: Meanwhile, Freeport LNG has sold the entire capacity of its proposed third 4.4 mtpa train to Toshiba of Japan and SK E&S LNG, an affiliate of South Korea’s SK E&S and SK Holdings. Each has signed a binding 20-year liquefaction tolling agreement (LTA) for a base quantity of 2.2 mtpa. Moreover, Freeport also announced that it expects each of the trains to produce around 0.6 mtpa above nameplate capacity. It has therefore included provisions in the LTA with Toshiba for the Japanese company to take “substantially all of such excess volumes in respect of the third liquefaction train”.

With the first two trains already sold out to Osaka Gas, Chubu Electric and BP, Freeport is now considering a fourth train, which would take total capacity to 17.6 mtpa.

All this is interesting on several levels. Firstly, Freeport is next in the queue for another DoE non-FTA licence determination. Secondly, that determination will cover a sufficient volume of gas for trains three and four. Thirdly, it expects to receive FERC approval for the first three trains in the first quarter of next year, and to begin construction on the first two soon after and on the third before the year-end.

That means we could see the first train coming on stream at the end of 2017, with train two coming on stream 6-9 months after that and train 3 coming on stream 6-9 months after train two. Add another year for train four and it is conceivable that Freeport could have 17.6 mtpa of capacity up and running before the end of the decade.

What we have yet to see is what the DoE will decide now that potential non-FTA exports have crossed the 6 Bcf/d threshold. It seems we won’t have to wait too long to find out.

by Alex Forbes

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