Cheniere moves forward on Sabine Pass LNG exports
Houston-based Cheniere Energy has arrived at making a final investment decision (FID) on the first two trains of its proposed 18m tonnes per annum (mtpa) Sabine Pass liquefaction project. On Thursday, it announced the go-ahead for construction after clearing through pending regulatory and financing hurdles.
Cheniere issued a full notice to US engineering, procurement and construction company Bechtel to proceed with building the first two 4.4mpta liquefaction trains at the terminal in Cameron Parish, Louisiana. The notice to proceed was contingent on meeting all regulatory and financing hurdles.
The announcement arrived on the heels of the US Department of Energy (DOE) issuing a final order on Sabine Pass' export licence to countries outside of US trade agreements.
A conditional May 2011 export approval by the US DOE was the first LNG export licence granted for a project in the lower 48 states for non-free-trade agreement countries.
The DOE provided final guidance for its ruling. It found that intervening parties that had filed protests and comments against the project, such as US environmental group the Sierra Club, had provided insufficient evidence to justify denying the project's approval.
In a related filing, the US Federal Energy Regulatory Commission (FERC) ruled on a request on its project permit by the Sierra Club, which sought to overturn FERC's permit authorisation that was granted in April. On 26 July, FERC issued a ruling on denying the environmental group's request.
A target of 2015 for start-up
Cheniere had stated its decision on 30 July to announce FID on the first phase of the project, funded with about $2.0bn in equity and about $3.6bn in debt. The total of $5.6bn is higher than it had initially announced.
A Cheniere spokesman said the revised total includes funds to cover financing charges during construction of the first two 4.4mtpa trains.
"We remain within the original project budget," the spokesman said.
The export terminal has 20-year take-or-pay-style commercial contracts based on 115% of the NYMEX Henry Hub contract for the source gas from the US natural gas pipeline system.
UK oil and gas company BG Group and Spain's Gas Natural will lift the volumes from the first two trains with South Korea's monopoly buyer KOGAS and India's state buyer GAIL taking capacity on trains 3 and 4.
Cheniere has indicated that it will use the remaining 2mtpa across the four trains for its own marketing. The caveat of final investment was subject to the closing of debt financing, funding of the initial equity investment by US-based Blackstone Energy and affiliates, and funding of the remaining equity investment by Cheniere.
"We are pleased to provide the growth capital to fund the construction of the first LNG export facility in the continental US, creating thousands of jobs for American workers and providing significant benefits to the US economy," David Foley, CEO of Blackstone Energy, said.
On 31 July, Cheniere announced the project closed on its $3.6bn credit facility, completing its debt financing. The credit facility was led by a consortium of 11 lending institutions, according to Cheniere.
The credit facility has an interest rate of the London Interbank Offered Rate (LIBOR) plus 350 basis points during construction, stepping up to LIBOR plus 375 basis points during operation.
A Cheniere spokeswoman said the company anticipated the first train's operational start date by the end of 2015, in line with the original projections.
"FID was something that we were working toward, and we've completed that," she said. "We haven't made any adjustments to the schedule."
Cheniere, which holds about $3bn in total assets, recorded a net loss of $24.9m for the second quarter of 2012, and a $44.2m loss for the six months ended 30 June, according to the company's earnings statement.
US lawmakers renew export call
Cheniere's announcement coincided with a renewed push from some US lawmakers to accelerate the approval process for proposed LNG export projects from the US by the federal energy department.
A letter signed by 44 lawmakers representing oil and gas producing states from Democratic and Republican House members called on energy secretary Steven Chu on 7 August to quicken the authorisation of LNG export licences to pending projects. The representatives hailed from Texas, Oklahoma, Louisiana and Arkansas states with major shale resources being developed.
The letter's authors supported the development of the proposed terminal projects, citing the need for jobs, and noted the disadvantage of the delay for US-based companies as LNG export projects progress in countries such as Canada and Australia.
"In our collective view, it is time to bring a renewed sense of urgency to the approval process," according to the joint letter.
The discovery of abundant shale gas resources − up to 232 trillion cubic feet, or about 6.5 trillion cubic metres, of technically recoverable gas by one DOE estimate − has driven down prices, creating the need to find an outlet for the gas through LNG exports, according the lawmakers' letter.
"This surplus of natural gas has produced very low prices for producers and an absence of market opportunities for natural gas, leading to many wells just being shut in," the letter stated.
The DOE has given blanket export approval to Cheniere's Sabine Pass project, but brought approvals of proposed LNG export licences to a halt in the autumn of 2011, when the department stated the need to examine the potential affects of increased gas exports on the domestic natural gas market.
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