Southeast Texas energy companies gassing up to drive global LNG market

The longtime fear among Baltic nations has been that Russia will use energy as a political weapon, cutting their natural gas supply. But in the future, that may no longer be leverage the superpower can use against the post-Soviet states, with a shale boom that has made the United States a major player in the LNG export market.

LNG exports will expand global gas markets, thereby enhancing U.S. influence around the world, according to David Goldwyn, a senior fellow with the Energy Security & Climate Initiative at the Brookings Institution, in testimony before the Senate Committee on Foreign Relations.

“From a geopolitical perspective, increased LNG exports from the U.S. and its allies would shift rents away from traditional, autocratic suppliers including Russia that have used the proceeds to finance policies at odds with U.S. national security interests,” said Goldwyn.

ExxonMobil Corp. estimates that the global trade in liquefied natural gas will more than triple through 2040, to nearly 100 billion cubic feet a day – roughly 40 percent higher than current U.S. gas output. The company projects that countries throughout Asia and the Pacific will import half of the gas they consume by 2040, with LNG making up 80 percent of imports.

But the global demand for LNG, a chilled form of natural gas used for electricity generation and home heating, is not infinite, a white paper by the American Gas Alliance (ANGA) released in April states, and if the United States wants to become a global energy leader, ANGA says the Department of Energy needs to move forward as quickly as possible to approve all terminals now in its queue. ANGA, a trade group representing the nation’s independent natural gas exploration and production companies, is asking Congress to enact legislation to help expedite and provide certainty to the permitting process.

Marty Durbin, president and chief executive officer of ANGA, said energy companies exporting LNG in Southeast Texas and Southwest Louisiana as well as others along the Gulf Coast will be a major part of the changing global energy market. His comments came in a media teleconference Thursday, April 16, when the Business Journal, as well as media from around the world, listened in and posed questions about the impact U.S. LNG exports could have globally.

“I think just based on the early approvals we’ve seen, I don’t think there is any question that the Gulf Coast … is going to be a major player in the LNG export market,” Durbin told the Business Journal.

Durbin discussed a new white paper that concludes America has a once-in-a-generation opportunity to export its abundant natural gas resource.

According to Durbin there are more than 30 facilities that have stated their intention to apply for permits to exportLNG, but he doesn’t believe there will actually be that many facilities.

 

Shell enters the LNG market

Royal Dutch Shell announced plans for a $70 billion deal to buy BG Group Wednesday, April 8, with analysts calling the move primarily a bet on robust global trade in LNG.

According to media reports, BG has the rights to export the first sizable volumes of American LNG to foreign buyers through a long-term agreement with Cheniere Energy Inc. from the proposed Sabine Pass LNG terminal in Cameron Parish, La.

Construction of the site is in its final stages, and the terminal is expected to begin exporting gas later this year. When Sabine Pass opens, it will be the first major U.S. LNG export facility.

“BG has sourced LNG from 15 producing countries, and is expected to add the USA as a supply source with contracted volumes from the Sabine Pass LNG terminal in early 2016. As the market expands, we are assessing further supply options, including Lake Charles in the USA, Tanzania and Canada,” said Andrew Gould, chairman of BG Group, in an April 8 webcast. “LNG shipping and marketing will combine well with Shell’s scale, development expertise and financial strength. In the low oil price environment that this industry is facing, there will be strength in scale. BG has some exciting growth projects that we expect will flourish under Shell’s leadership.”

 

Cheniere Energy’s Sabine Pass LNG

Jason French, director of Government and Public Affairs at Cheniere Energy, said the Sabine Pass LNG terminal in Louisiana is roughly a $20 billion investment by Cheniere.

“This is arguably one of the largest industrial investments in the history of the United States,” French told the Business Journal. “We’ve had a couple of different studies now that have shown for every 2 billion cubic feet of demand for natural gas … it requires 50,000 people in the exploration and production industries to produce that gas. What that means is at Sabine Pass, we are going to be capable of exporting approximately 4 billion cubic feet of gas per day when the facility is complete “

French used an analogy to further explain the magnitude of the project.

“Energy projects don’t get quite as much attention as football stadiums when they are being built, but Cowboys Stadium, which was built just a few years ago, was the most expensive stadium built in the history of the United States at a cost of about $1.3 billion,” he said. “This project works out to about 15 Cowboys Stadiums that we are building in Cameron Parish, Louisiana, across from Sabine Pass.”

French updated the Business Journal on the status of the LNG trains, compressor trains used in industrial process to convert natural gas into liquefied natural gas.

“From a progress standpoint, trains 1-4 are currently under construction,” French said, adding that the first LNG train is expected to produce LNG in late 2015, with the remaining three LNG trains being completed on a 6-9 months staggered basis thereafter. “The project has remained on schedule and on budget, and we are scheduled to start commissioning train 1 this year. Trains 5 and 6 are still awaiting regulatory approval from the federal government. We anticipate getting approval for 5 and 6 any day now. We’ll have to receive final approval from the Department of Energy to export gas through trains 5 and 6, but we are very optimistic about that, as well.”

Construction of the facility started in August 2012.

“We are on stage 1 of the project, which are trains 1 and 2, the first LNG producing units,” French said. “We are 85.4 percent complete. There have been over 12.5 million man-hours worked on the site already.”

French said there will be an average of 5,611 jobs over 8 years as a result of the project, and more than 16,000 jobs during the peak construction year will be generated by project spending.

“During the period of construction, we are looking at $8 billion of secondary business economic activity in the state of Louisiana alone, with $3.3 billion of wages paid to Louisiana residents,” he said. “We haven’t done a Texas-specific study, but the fact is much of the infrastructure that supports what we are doing in Sabine Pass comes from Southeast Texas. The area has a rich infrastructure, has service companies and resources that can support a project like ours, so we know there is significant investment going on on both sides of the state line. “

One of the entities cashing in on the project is the city of Port Arthur, which entered into an agreement with Cheniere to supply water to Sabine Pass LNG.

“Cheniere’s total investment in water infrastructure for the city of Port Arthur is over $50 million. The flow rate will max out at 3,500 gpm,” French said.

French said Cheniere anticipates the first LNG being produced later this year.

Cheniere also signed a “memorandum of understanding,” with Lithuanian company Klaipedos Nafta in 2011, to address the company’s future natural gas needs and assess LNG purchase and supply options. Klaipedos Nafta owns and operates one of the most modern crude oil and crude oil product terminals in Europe in the ice-free port of Klaipeda, a major Lithuanian transport junction connecting sea routes, motorways and railways between the East and West. Klaipedos Nafta’s LNG terminal began operating in 2014.

 

Golden Pass LNG

The Golden Pass LNG Terminal, located about 10 miles south of Port Arthur in Jefferson County on the Sabine-Neches Waterway, is an expansion project to add an export terminal to the existing import terminal. It is a joint venture formed by affiliates of three of the world’s largest oil and gas companies — Qatar Petroleum, ExxonMobil and ConocoPhillips.

Among the largest terminals in the world, the Golden Pass LNG Terminal can accommodate up to 15.6 million metric tons of LNG per year, the equivalent of approximately 2 billion cubic feet of LNG per day.

According to Golden Pass Products project executive Bill Davis, Golden Pass is advancing the FERC permitting process for its proposed project to add liquefaction and export capabilities to the existing Golden Pass LNG facility in Sabine Pass, Texas. The Golden Pass LNG project totals approximately $10 billion, Davis said.

“We filed formally with FERC in July 2014 and have completed the Front End Engineering and Design (FEED) phase of the project,” Davis said. “We are fully focused on progressing FERC permitting to ensure prompt regulatory reviews. Golden Pass submitted its application to export LNG to Free Trade Agreement countries to the U.S. Department of Energy in the summer of 2012, and received FTA authorization shortly after.

“We submitted our non-FTA application in October 2012 and still await DOE review and approval,” he added. “Our shareholders, ExxonMobil and Qatar Petroleum International, have the skills, experience and ability to successfully execute this expansion of our existing world-class facility. The $10 billion project is expected to generate a huge boost for the U.S. economy, generating $31 billion in economic gains, 45,000 direct and indirect jobs across the nation during the five-year construction phase and 3,800 permanent jobs for the 25-year operations phase.”

Once permits are issued, Davis said the company is looking to make a final investment decision in 2016 and could see its first LNG production as early as 2019.

The company’s estimated send out capacity is approximately 15.6 million tons of LNG per year, which is equivalent to 2 billion cubic feet per day, Davis said.

 

The bottom line

ANGA argues that the window of opportunity for the U.S. to capture the global energy demand through terminals like those currently under construction and awaiting licensing at Sabine Pass is narrow.

“We urge the administration to continue to find ways to move applications more quickly,” ANGA says in its April White Paper. “We also believe it is important for Congress to enact legislation to expedite and provide certainty to the approval process.”

The U.S. House passed HR351 in January, which would require DOE to process permits within 30 days of FERC approval. The bill is currently in the Senate. Senate Legislation S33 sets a 45-day approval window for DOE. The bill was introduced in January and hearings have been held.

Lithuania launched an LNG carrier designed as a floating LNG storage and regasification unit to be used as an LNG import terminal in Lithuania in 2014 and hopes to have the vessel operating at maximum capacity to handle almost 140 billion cubic feet per annum of natural gas (2.2 million tonnes of LNG) by the end of 2015. The carrier is aptly named “Independence.” n

 

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