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LNG & Natural Gas Opinions

Master Limited Partnerships Tempt US Export Players
March 20, 2014
Five US liquefaction proponents with non-free trade country export authorization are in the throes of courting financiers to fund their projects. Freeport LNG in Texas is the latest to announce financing with a $1.2 billion capital injection from Chubu Electric and Osaka Gas, the two tolling customers in train 1, in the form of equally split equity funding for the 4.4 MMt/y unit. The first train is now expected to cost about $5 billion while the 13.2 MMt/y project’s total price tag has risen from $11 to $14 billion. In addition to the main $5 billion construction contract for the first two trains, there is $1 billion in refinancing and another $1 billion in owner’s costs and roughly $2.5 to $3 billion of interest during construction on these units. The third train will cost another $4 billion. While Freeport chose funding from its offtakers, the playbook for equity at Cheniere Energy’s 18 MMt/y Sabine Pass Liquefaction in Louisiana was issuing common units on a US stock exchange in a master limited partnership that continues to provide public investors an opportunity to invest in LNG. MLPs are common in LNG shipping, and 2013 was a record year for MLP public offerings in the US. At least three projects are now plotting to use MLPs to help finance US liquefaction capacity.
State Unveils Plans To Take Equity Stake In Alaska LNG
February 25, 2014
While non-binding, commercial agreements signed on January 14 confirm plans by the state of Alaska to join a liquefaction project based on reserves in the North Slope. The Heads of Agreement with ExxonMobil, ConocoPhillips and BP reserves an equity stake of 20-25% in Alaska LNG for the state, who will take its share of royalties and gas production tax in LNG and liquids rather than value under a Royalty in Kind concept that was first mooted last year and has since been embraced by Governor Sean Parnell and his administration (see LNGWM, Sep ’13). “This HoA implicitly acknowledges that the only way to get the risks and rewards aligned between the state and the producers is for Alaska to participate directly in the project,” notes one insider. A separate Memorandum of Understanding between the state and TransCanada that effectively terminates the Alaska Gasline Inducement Act was signed on the same day. AGIA had contemplated a gas pipeline to the Lower-48 states, an idea that died after the shale revolution, with TransCanada as Alaska’s licensee. The new MoU lays out plans for TransCanada to invest on the state’s behalf in the 800-mile feedgas line to tidewater as well as the gas processing facilities at Prudhoe Bay on the North Slope that will treat 3.5 Bcf/d of wellhead gas. Alaska’s designee, in turn, will pay TransCanada tariffs for processing the state’s share of this gas and transporting it to the liquefaction plant.
Japan Plans For More Lean LNG Despite Uncertainty
January 12, 2014
Tokyo still sees LNG from the US as a panacea for the country’s widening trade deficit, which reached nearly $11 billion in October. But buyers remain cautious about a possible flood of “super-lean” imports over the next decade. Importers are under enormous pressure from the government to lower their fuel bills, and have publicly backed the shift to lower-priced US supplies. After a flurry of liquefaction tolling agreements at export projects proposed in Louisiana, Texas and Maryland, Japanese players haven’t exactly been inundated with demand from end-users (see LNGWM, Oct ’13). These LTAs cover nearly 17 MMt/y, but power utilities and gas companies in Japan have lined up only 7.4 MMt/y of this volume on a long-term basis. This includes direct deals with project sponsors, such as the LTAs negotiated by Osaka Gas and Chubu Electric at Freeport LNG, or as resale volume purchased on delivered ex-ship or FOB terms from trading houses Mitsubishi, Mitsui and Sumitomo at Cameron LNG and Cove Point.
Panama Canal Prepares For Expansion In 2015
December 23, 2013
Interest in the Panama Canal expansion, which will double transit capacity through the waterway, is growing as the $5.25 billion project nears completion. Started back in 2007, construction is 64% complete with the expansion now scheduled to come on-line towards the end of 2015. Nearly 90% of the LNG fleet will be able to transit the canal after it is expanded, compared to just 7% today. Although the timing fits perfectly with the liquefaction projects under construction or proposed on the US Gulf Coast and along the eastern seaboard, the idea that LNG vessels would be transiting the canal was not on any radar screen when the expansion was first conceived. Imports of LNG into the US actually peaked in 2007 at 16 MMt, largely sourced from exporters in the Atlantic basin with no need for the canal. The major impetus behind the expansion was to attract larger container vessels, allowing Panama to compete with rival offerings from the Suez Canal. Now, however, the 48-mile artery connecting the Atlantic and Pacific oceans promises to become an inter-basin route for US export projects.
Australian LNG Projects Brace For Further Delays
November 18, 2013
Timing schedules for the startup of several greenfield LNG projects in Australia continue to shift, with major ventures like Gorgon, Wheatstone and Ichthys all facing delays beyond what their sponsors have so far announced. This could postpone the wave of Aussie-based supply that buyers are counting on to bring relief to tight LNG markets in the latter half of this decade. Leading the expected delays is Chevron’s 15.6 MMt/y Gorgon project, where rumors that the US major will miss its revised target date of first quarter 2015 for initial exports are growing. “There is no way Gorgon will start until the first half of 2016,” one source predicts, adding that Chevron has begun disseminating news of potential delays to its offtakers. The company has also put off expansion plans, reportedly postponing front-end engineering and design on a fourth 5.2 MMt/y train until next year at the earliest.
China Inches Closer To Russian Pipeline Deal
October 23, 2013
Accompanied by Chinese president Xi Jinping, officials from China National Petroleum Corp made a whirlwind tour through Russia and Central Asia in September. The trip was made largely as an attempt to successfully cement and diversify Beijing’s gas supply relationships in the region. The G20 Summit, held in St. Petersburg on September 5-6, once again spotlighted the long-awaited but so far elusive pipeline deal between Russia and China. After a decade of negotiations, the two sides finally seemed to be inching closer to an agreement during meetings in St Petersburg.  But they remain far apart on price. Beijing isn't holding its breath, with the Chinese delegation stopping off in Turkmenistan on its way to the summit in order to line up further gas supplies from the Central Asian country. China’s appetite for gas shows no hint of abating, despite signs of an economic slowdown.
Resurgent Upstream Boosts Malaysia’s LNG Prospects
September 18, 2013
Malaysia’s resurgent upstream sector has been in the spotlight ever since the quick-fire announcements from Petronas that it had formally approved the ninth train at Malaysia LNG in Sarawak and reached a final investment decision on its first floating LNG project off the Borneo island state. But the government-owned firm is not stopping at these projects, with Petronas running its ruler over additional liquefaction capacity at MLNG’s Bintulu complex and pushing to take FID on a second floater called PFLNG-2 offshore Sabah in the fourth quarter. The optimism is underlined by a recent upswing in the country’s exploration and production prospects and the imminent completion of new natural gas pipeline infrastructure in gas-rich eastern Malaysia (see LNGWM, Sep ’11). Gas reserves off Sabah, also on Borneo island, will form a key supply plank at MLNG going forward with the imminent completion of the Sabah-Sarawak Gas Pipeline in October. The 512-km line will carry 750 MMcf/d from the Sabah Oil and Gas Terminal in Kimanis to the eight-train 22.7 MMt/y MLNG complex at Bintulu.
Shell Puts Small-Scale Technology To Work At Elba Island
August 21, 2013
While Cheniere’s Sabine Pass continues to garner headline after headline touting it as the first liquefaction project to export from the US Lower 48, Shell and Kinder Morgan are positioning themselves to possibly get across the finish line first at their Elba Island project in Georgia. The two energy companies are aiming for the 1.5 MMt/y first phase to be in commercial service by December 2015 and the second 1 MMt/y phase producing LNG the same time the following year. The ambitious timeline hinges on the project’s decision to sidestep the US Department of Energy’s non-free trade agreement license process, meaning all production would be sent to destinations that have trade agreements in place with the US. Shell will take all of the liquefaction capacity in the project, as well as a 49% equity stake, while the US pipeline giant will retain a controlling interest and operate the facility located outside of Savannah. Kinder Morgan inherited Elba Island after its acquisition of fellow midstream firm El Paso in 2012.
Commodity Traders Boost Role As Banking Model Fades
June 30, 2013
The departure this month of Morgan Stanley’s LNG trading desk to Swiss commodities giant Glencore Xtrata does not signal a death knell for investment banks in the physical market. But it is the latest in a trend that has seen traditional commodity traders evolve into a potent force in short-term trading. With internal credit restrictions reducing the amount of risk capital available for trading, investment banks have either left the market or reduced their involvement to more specialized roles. “Morgan Stanley made no secret that they wanted to sell or somehow monetize their LNG desk, and the exodus says a lot about the end of the banking model into trading,” notes one source who says the banks no longer allow their trading desks to take speculative positions that are not fully hedged or supported by back-to-back sales. As the banks reduce their presence, trading giants Vitol, Trafigura and Gunvor have upped their game and are being joined by the likes of Glencore Xtrata, Noble Group, Axpo and Koch Supply & Trading. Singapore’s Temasek Holdings has also set up a LNG trading arm called Pavilion Energy with $1 billion in capital, which will begin operations in September, while Azerbaijan has established Socar Trading in Switzerland.
Fingers Crossed For Myanmar-China Pipeline Startup
May 31, 2013
Gas deliveries from Myanmar to China had been expected to flow for the first time in June or July, and a 790-km pipeline linking the two countries is indeed close to being finished. The 1.2 Bcf/d line was due to come onstream after May 30, the deadline set by pipeline operator China National Oil Corp. But a delay in the commercial operation of Blocks A-1 and A-3, the two offshore licenses in Myanmar that will feed the pipeline, could push startup back, according to an executive from one of the upstream partners. The pipeline transits Myanmar’s restive Shan state and continuing pockets of conflict in this area may also be a factor in the commissioning delay.
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