EPC Deadline Extended for Lake Charles Magnolia LNG Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Liquefied Natural Gas Limited (LNGL) (Perth, Australia), the parent company of Magnolia LNG LLC (Houston, Texas), which is developing a liquefied natural gas (LNG) production and export facility in Lake Charles, Louisiana, has extended the engineering, procurement and construction (EPC) deadline on the project to December 31, 2017. The lump-sum turnkey contract exists with KSJV, a joint venture of KBR Incorporated (NYSE:KBR) (Houston) and SK E&C (Seoul, South Korea).

In a press release, LNGL Chief Executive Officer Greg Vassey said, "The extension of our agreement with KBR-SK E&C provides us with additional confidence as we focus on finalizing offtake agreements and moving toward a final investment decision (FID) for Magnolia, while we also maintain Magnolia's standing as the low-cost, low-risk, construction-ready Gulf Coast LNG export project." This is not the first time LNGL has extended the EPC deadline.

The project could generate 8 million tons or more per year of LNG. The $4.2 billion project is planned to kick off next summer, but the extension of the EPC deadline and FID could push the date further back. The project has received permission from the U.S. Department of Energy to export to countries without a free trade agreement with the U.S. The project is to be built in two phases, with Phase I including two 2 million-ton-per year LNG trains, followed by trains 3 and 4, also 2 million tons each, which would begin construction at a later date. For more information, see Industrial Info's project reports on trains 1 and 2 and trains 3 and 4.

The project is planned to obtain its supply of natural gas from Kinder Morgan Incorporated's (NYSE:KMI) (Houston, Texas) Lake Charles Expansion Project, a natural gas pipeline project that is planned to kick off in 2018 and be completed in early 2019. For more information, see Industrial Info's project report.

While LNGL's extension of the EPC deadline is not necessarily indicative of any concern about the project's viability, there is general consensus that the global LNG market will be oversupplied in the near term. Moody's Corporation (NYSE:MCO) (New York, New York) earlier this year said that the agency "expects global liquefied natural gas (LNG) prices to remain constrained beyond 2020 as a wave of fresh supply capacity comes online at a time when demand from the world's largest importers is weakening. ... Strong LNG demand growth from China, India and new markets will not be enough to absorb the fresh supply capacity coming online, particularly with demand falling in the largest importing countries, Japan and Korea." Moody's went on to say it expected the market to rebalance in the early years of the next decade, when demand and import infrastructure catch up with supply.

Industrial Info is tracking more than $93 billion in active LNG projects in Louisiana, although not all of these will make it to completion. Among the largest of these is Sempra Energy's (NYSE:SRE) (San Diego, California) $10 billion facility in Cameron Parish, Louisiana. The project has received permission to export to countries without a free trade agreement with the U.S. The project kicked off construction in late 2014 and is expected to be completed in the first quarter of 2018. The facility will include three 5 million-ton-per-year LNG trains. For more information, see Industrial Info's project report.

Another Louisiana LNG project is Tellurian Incorporated's planned LNG production and export terminal Lake Charles. The Driftwood LNG project is planned to kick off construction next year with an initial production capacity of 5.2 million tons per year. Completion is set for mid-2022. The project could be expanded by up to four additional trains. For more information, see Industrial Info's project report. For more on Tellurian, see May 22, 2017, article - Tellurian Driftwood LNG Project Progresses Despite Withdrawal of Public Offering.

KBR also is acting as design and engineering firm on another LNGL project: the Bear Head LNG production and export terminal in Nova Scotia. The facility could produce and export up to 12 million tons per year of LNG, sourced from natural gas coming from the Marcellus Shale, but the company continues to review options to accept gas from western Canada. In total, the project could include three 4 million-ton-per-year trains. The project has received government approval to construct the plant and export LNG to countries with and without a free trade agreement. Construction on the project, which will be built on the site of a partially completed LNG terminal, is planned to kick off late next year and be completed in 2022. For more information, see Industrial Info's project reports on trains 1 and 2 and Train 3.

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