Tuesday, April 17, 2012

Sempra Energy Signs Agreements to Develop LNG Export Facility

Big news lately on the LNG export front. Yesterday Cheniere Energy Partners (CQP) got approval to begin construction on it's export terminal in Louisiana. Today Sempra Energy signed agreements with 2 major Japanese companies to develop and construct a natural gas liquefaction export facility in Louisiana as well.

While another major step towards exporting the abundance of cheap natural gas in the US, it will take until 2016 before the facility would commence operations.

With these 2 commercial agreements with Mitsubishi Corporation and Mitsui & Co., the project would already have 66% of production set for 20 years. Now the question is whether the US government will ultimately allow the export of this natural resource. The answer so far is yes, but what happens in 2014 when the future prices for 2015 and beyond start soaring?

The plan involves building 3 liquefaction trains with a total export capability of 12 Mtpa of LNG, or approximately 1.7 Bcf per day. Construction on the project would begin in 2013 with operations commencing in late 2016. That is over 4 years from now so a lot could change by then.

By comparison, the Cheniere project expects to complete 4 LNG trains for 16 Mtpa or 1 train larger than the Sempra Energy plan. The Cheniere plan also allows for operations commencing in 2015 with 1 train added per year. It also is fully sold out already.

Details on the Sempra Energy plan:

  • signed commercial development agreements with Mitsubishi Corporation (8058.TYO) and Mitsui & Co., Ltd. (8031.TYO) to develop and construct a natural gas liquefaction export facility at the site of  Cameron LNG receipt terminal in Hackberry, La. 
  • bind the parties to fund all development expenses, including design, permitting and engineering, as well as to negotiate 20-year tolling agreements, based on agreed-upon terms outlined in the commercial development agreements. Each tolling agreement would be for 4 million tonnes per annum (Mtpa). 
  • completed liquefaction facility is expected to be comprised of three liquefaction trains with a total export capability of 12 Mtpa of liquefied natural gas (LNG), or approximately 1.7 billion cubic feet (Bcf) per day.  
  • Construction on the project is expected to start in late 2013 with operations to commence in late 2016.
  • liquefaction facility will utilize Cameron LNG's existing facilities, including two marine berths capable of accommodating Q-Flex sized LNG ships, three LNG storage tanks of 480,000 cubic meters, and vaporization capability for regasification services of 1.5 Bcf per day. 
  • The anticipated incremental investment in the three-train liquefaction project is estimated to be $6 billion, the majority of which will be project-financed and the balance provided by the project partners in a joint-venture arrangement.  
  • Cameron LNG has awarded an engineering services contract to Foster Wheeler AG (NASDAQ: FWLT - News) for project development, front-end engineering design to support permit applications to the FERC and support for engineering and construction contracting.

The investment implications will be immense if both projects actually make it to operations. Foster Wheeler will be one of the first beneficiaries with the engineering services. Other than that, oil service and exploration companies will benefit from the higher demand. Conversely, chemical companies and users relying on cheap natural gas to fuel vehicles could be impacted by higher prices. 

The later companies could really get squeezed if they make huge investments over the next couple of years based on cheap fuel that ultimately becomes very expensive as demand soars. The fuel is so expensive around the world that everybody wants access to it. Hopefully somebody is monitoring future demand so that it doesn't explode beyond production capabilities. 

Can the US market support new demand for fueling vehicles, exporting, and new chemical plants? Remember this is a major heating source for US homes and jumping back to prices above $10 won't be acceptable if the fuel is being exported to Asia. 


Disclosure: Long FWLT. Please review the disclaimer page for more details. 



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