Cheniere to Build First U.S. LNG Liquefaction Plant to be Designated for Export in 30 Years

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Researched by Industrial Info Resources (Sugar Land, Texas)--Cheniere Energy Incorporated (AMEX:LNG) (Houston, Texas) is planning to construct a natural gas liquefaction plant at the company's Sabine Pass liquefied natural gas (LNG) receiving and regasification terminal in Louisiana. Cheniere plans to construct two 3.5 million-ton-per-year LNG production trains at its Sabine Pass facility to take advantage of the infrastructure Cheniere recently put into service.

While there are no definitive cost estimates that have been released from Cheniere Energy, the company's chairman and chief executive officer, Charif Souk, says that the costs would be lower than Apache Corporation's (Houston) costs of $2.9 billion for its 5 million-ton-per-year train planned for its Kitimat LNG project on the Pacific Coast in British Columbia. The difference being that Cheniere Energy would save on the existing infrastructure at its Sabine Pass terminal, which includes five 160,000-cubic-meter LNG storage tanks with a combined storage capacity of 16.8 billion cubic feet; a marine with two docks that can accommodate the large QMax LNG carriers; and the Creole Trail pipeline.

If constructed, the Sabine Pass LNG plant would be the first marine export-oriented LNG liquefaction plant constructed in the U.S. in more than 30 years, and the first commercial-scale LNG liquefaction plant constructed in the lower 48 states. The only existing LNG production plant constructed with marine-exporting facilities is the Kenai Alaska LNG liquefaction plant, which was constructed nearly 30 years ago, to test the ConocoPhillips Optimized Cascade Liquefaction Technology that is in use today in LNG facilities such as Trinidad's Atlantic LNG production trains. Cheniere Energy intends to utilize this same process in its Sabine Pass LNG project, and ConocoPhillips (NYSE:COP) (Houston, Texas) most likely will become heavily involved in the project. Cheniere Energy has already engaged the Houston office of the Bechtel Group for engineering services and will most likely utilize Bechtel's services through the construction phase given the history of the relationship between the two companies.

Cheniere Energy has announced that it will begin the NEPA pre-filing process with the Federal Energy Regulatory Commission (FERC) sometime in late June 2010. After that point it should take Cheniere about a year to develop resource reports 1 to 13 for the FERC and another six months of front end engineering and design work. The company will need at least enough clients signed on to purchase 3.5 million tons per year before project will become a reality in the eyes of Cheniere Energy's board. Taking all this into consideration, construction on the Sabine Pass LNG plant could begin in 2012 at the earliest, with a completion date targeted for some time in 2015.

Given that LNG imports are less attractive these days, LNG terminal owners are changing their strategy to an export-orientated scenario which, given the shear amount of shale gas-sourced development on-going in North America at the present time, is a much more sustainable strategy. The most obvious destination for the LNG produced would be Europe, given its close proximity to the Gulf of Mexico, and the premium that would be placed on a product produced in a country with a stable system of laws that would make long-term contracts predictable. Asia could be a destination point as well, given the expansion to widen the Panama Canal, but the shipping distance to the markets of Japan, South Korea, China and Taiwan are more distant.

If the natural gas reserves both conventional and unconventional in nature of the lower 48 states are taken into consideration, then producing LNG for export abroad makes good economic sense, given that natural gas supplies are at their highest level in more than 30 years, we have an abundant supply, and there are several LNG terminals on the Gulf Coast with idle capacity. The existing LNG terminals provide infrastructure that an export oriented LNG production plant would need to function. In addition, shale plays like the Barnett shale, Fayetteville, Haynesville are just north of the existing LNG infrastructure that was constructed on the Gulf coast in the last decade, much of which is underutilized. Locations like Brownsville and Corpus Christi are close to the Eagle Ford, shale which is in early development by several energy companies in south Texas.

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