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Shell joins Kinder Morgan in US LNG export pact

31 Jan 2013 13:19:56 | glm

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Shell has partnered with Houston-headquartered energy company Kinder Morgan in developing a 2.5m tonnes per annum (mtpa) LNG export project at the existing Elba Island facility in Georgia, bolstering the Anglo-Dutch major's liquefaction position in the US.

Shell and Southern Liquefaction Co, a Kinder Morgan subsidiary and unit of Elba Island terminal operator El Paso, have established a joint venture company to advance and operate the liquefaction project, the companies said in a joint statement on Monday. The deal, subject to regulatory and corporate approvals, will see El Paso take a controlling 51% stake in the joint venture, with Shell holding the remaining equity.

While the Anglo-Dutch major has established itself as the pre-eminent LNG major, with an enviable portfolio based primarily on Australian LNG growth, its strategy for the next wave of growth post-Australia is still largely a work in progress.

The company has checked out a series of potential export projects in Asia, which are all at the early stages of development, and also is progressing a 12mtpa scheme in western Canada in partnership with South Korean monopoly KOGAS, Japanese trading company Mitsubishi as well as Chinese state-owned PetroChina.

Although Shell signed a preliminary agreement with the Freeport LNG project in 2012 to lift an unspecified amount of LNG from the planned 21.25mtpa Texas-based project, plans to monetise its US assets as LNG had lagged behind other LNG portfolio suppliers, such as UK-based BG Group and Spain's Gas Natural Fenosa.

Kinder Morgan's Elba Island project received approval from the US Department of Energy (DOE) last June to export 500 million cubic feet (mcf)/day - approximately 4mtpa - to countries that have a free trade agreement (FTA) with the US. The Kinder Morgan subsidiary Southern LNG then submitted another filing with the DOE in August to export up to 4mtpa of LNG to non-FTA countries.

The DOE is expected to start a review of the various planned projects that have filed to export to non-FTA countries starting at the end of February. Regulatory consideration of the projects will begin in order of filing, with preference given to projects in the Federal Energy Regulatory Commission (FERC) pre-filing stage.

This would theoretically leave Elba Island behind approximately nine other planned liquefaction projects.

However, Shell and Kinder Morgan said that they would develop the first phase of the project as a 1.5mtpa capacity plant, which would need no additional approval from the DOE because of its FTA approval in place, potentially giving the venture a quick route to market.

According to Kinder Morgan's investor presentation on 30 January, the pipeline company's total capital investment into Elba Island liquefaction is $529m, which includes liquefaction facilities, ship loading and compression to reverse pipeline flow from the Transco line to the facility.

The Elba export project has an estimated in-service date by 2016.

Shell flagging at Freeport?

Shell's sign-on of full capacity at Elba Island could edge out the Freeport LNG export project proposed in Texas. Japanese utilities Osaka Gas and Chubu Electric Power have signed liquefaction tolling agreements for 2.2mtpa each over a 20-year period with Freeport. The Anglo-Dutch major signed a heads of agreement (HoA) last May with the rival project, but little has publicly advanced on the agreement since then.

"Shell is exploring opportunities for LNG export on the Gulf Coast," said a spokeswoman.

However, market sources have speculated that the agreement was nearing its expiration date. Representatives for Freeport LNG declined to comment.

Kinder Morgan second project

Kinder Morgan, through El Paso's subsidiary Gulf LNG, also operates the Gulf LNG import terminal in Pascagoula, Mississippi, which also similarly received FTA approval on 15 June 2012. The smaller-sized Gulf LNG will have a planned capacity of 2.1mtpa, or about 300mcf/day.

Commercial talks have advanced at Gulf LNG, and three memorandums of understanding (MoUs) with offtakers have been executed, according to the presentation by Tom Martin, Kinder Morgan's president of its natural gas pipeline group.

Two of the agreements will be marketed for FTA capacity, while one MoU is related to a non-FTA country.

Gulf LNG, which was initially conceived as the receiving terminal for the still-delayed Angola LNG project, now has an estimated start-up date to begin exports by 2018.

Kinder Morgan anticipates Gulf LNG's capital investment at $500m for its portion.

Gulf LNG remains in negotiations with customers, the company stated.

Shell has partnered with Houston-headquartered energy company Kinder Morgan in developing a 2.5m tonnes per annum (mtpa) LNG export project at the existing Elba Island facility in Georgia, bolstering the Anglo-Dutch major's liquefaction position in the US.

Shell and Southern Liquefaction Co, a Kinder Morgan subsidiary and unit of Elba Island terminal operator El Paso, have established a joint venture company to advance and operate the liquefaction project, the companies said in a joint statement on Monday. The deal, subject to regulatory and corporate approvals, will see El Paso take a controlling 51% stake in the joint venture, with Shell holding the remaining equity.

While the Anglo-Dutch major has established itself as the pre-eminent LNG major, with an enviable portfolio based primarily on Australian LNG growth, its strategy for the next wave of growth post-Australia is still largely a work in progress.

The company has checked out a series of potential export projects in Asia, which are all at the early stages of development, and also is progressing a 12mtpa scheme in western Canada in partnership with South Korean monopoly KOGAS, Japanese trading company Mitsubishi as well as Chinese state-owned PetroChina.

Although Shell signed a preliminary agreement with the Freeport LNG project in 2012 to lift an unspecified amount of LNG from the planned 21.25mtpa Texas-based project, plans to monetise its US assets as LNG had lagged behind other LNG portfolio suppliers, such as UK-based BG Group and Spain's Gas Natural Fenosa.

Kinder Morgan's Elba Island project received approval from the US Department of Energy (DOE) last June to export 500 million cubic feet (mcf)/day - approximately 4mtpa - to countries that have a free trade agreement (FTA) with the US. The Kinder Morgan subsidiary Southern LNG then submitted another filing with the DOE in August to export up to 4mtpa of LNG to non-FTA countries.

The DOE is expected to start a review of the various planned projects that have filed to export to non-FTA countries starting at the end of February. Regulatory consideration of the projects will begin in order of filing, with preference given to projects in the Federal Energy Regulatory Commission (FERC) pre-filing stage.

This would theoretically leave Elba Island behind approximately nine other planned liquefaction projects.

However, Shell and Kinder Morgan said that they would develop the first phase of the project as a 1.5mtpa capacity plant, which would need no additional approval from the DOE because of its FTA approval in place, potentially giving the venture a quick route to market.

According to Kinder Morgan's investor presentation on 30 January, the pipeline company's total capital investment into Elba Island liquefaction is $529m, which includes liquefaction facilities, ship loading and compression to reverse pipeline flow from the Transco line to the facility.

The Elba export project has an estimated in-service date by 2016.

Shell flagging at Freeport?

Shell's sign-on of full capacity at Elba Island could edge out the Freeport LNG export project proposed in Texas. Japanese utilities Osaka Gas and Chubu Electric Power have signed liquefaction tolling agreements for 2.2mtpa each over a 20-year period with Freeport.

The Anglo-Dutch major signed a heads of agreement (HoA) last May with the rival project, but little has publicly advanced on the agreement since then.

"Shell is exploring opportunities for LNG export on the Gulf Coast," said a spokeswoman.

However, market sources have speculated that the agreement was nearing its expiration date.

Representatives for Freeport LNG declined to comment.

Kinder Morgan primes second export project

Kinder Morgan, through El Paso's subsidiary Gulf LNG, also operates the Gulf LNG import terminal in Pascagoula, Mississippi, which also similarly received FTA approval on 15 June 2012.

The smaller-sized Gulf LNG will have a planned capacity of 2.1mtpa, or about 300mcf/day.

Commercial talks have advanced at Gulf LNG, and three memorandums of understanding (MoUs) with offtakers have been executed, according to the presentation by Tom Martin, Kinder Morgan's president of its natural gas pipeline group.

Two of the agreements will be marketed for FTA capacity, while one MoU is related to a non-FTA country.

Gulf LNG, which was initially conceived as the receiving terminal for the still-delayed Angola LNG project, now has an estimated start-up date to begin exports by 2018.

Kinder Morgan anticipates Gulf LNG's capital investment at $500m for its portion.

Gulf LNG remains in negotiations with customers, the company stated.

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