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Providing coverage of Alaska and northern Canada's oil and gas industry
December 2005

Vol. 10, No. 52 Week of December 25, 2005

Petroleum News: LNG terminal gets FERC go-ahead: "Besides Woodside, the partners are subsidiaries of BHP Billiton, BP, Chevron and Shell, plus Japan Australia LNG (Mitsui and Mitsubishi).": Saturday 24 December 2005

Cheniere milestones come as Trinidad adds big new production train in tight world market for low-polluting fuel

Allen Baker

Petroleum News Contributing Writer

Another LNG terminal on the Gulf Coast has received all its permits for construction just as the huge liquefied natural gas complex in Trinidad added production capacity.

Cheniere Energy Inc. announced Dec. 16 it has received authorization from the Federal Energy Regulatory Commission to build a terminal at Corpus Christi, Texas, with a capacity of 2.6 billion cubic feet daily.

The company said the same day that FERC has issued a draft Environmental Impact Statement for the Creole Trail LNG terminal (3.3 bcf per day) in Cameron Parish, La. And three days later, the company building the Freeport LNG terminal (1.75 bcf per day initial capacity) in Texas announced it has closed a $383 million private financing deal for that terminal, where Cheniere has a 30 percent interest and ConocoPhillips is a partner.

Aside from Freeport, in Texas, Cheniere has also begun construction at its Sabine Pass terminal in Louisiana, with a capacity of 2.6 billion cubic feet.

Plainly speaking, the LNG terminals being built around the country could be sitting on loads of excess capacity as other nations speak for the world’s LNG supply. The five existing U.S. terminals are running at about 50 percent of their capacity, and new supplies around the world are being locked up by gas-hungry utilities signing contracts stretching out a quarter of a century.

For example, Chevron Corp. has long-term contracts for its 50 percent share of the planned Gorgon project off Australia. Three Japanese utilities recently agreed to 25-year contracts for Chevron’s 5 million tonnes of LNG annually, the equivalent of about 660 million cubic feet daily.

The Japanese companies were clearly willing to pay a premium for the gas, which had been destined for China. That country’s CNOOC backed out due to price issues.

Atlantic LNG at Trinidad and Tobago is the closest and biggest LNG supplier for the North American market. The startup of Train 4 on Dec. 16 boosted capacity there by more than 50 percent to 15 million tonnes per year.

That amounts to just under 2 bcf per day, so even if it all went to the four Gulf Coast receiving terminals where Cheniere is involved, it would amount to just a fifth of their capacity. That’s before planned Phase 2 expansions, competing terminals, and so on. Filling those capital-intensive projects, which cost around $600 million each, could be a challenge.

New LNG supplies are being developed around the world, from Nigeria to gas-rich Qatar to Indonesia and Sakhalin Island. Billions of dollars are going into gigantic chillers and insulated tankers to carry the supercooled liquid.

Australia’s Woodside Energy Ltd. just announced plans to spend more than $1 billion on developing the Angel field, with projected output of 800 million cubic feet of gas and up to 50,000 barrels of condensate daily. That will feed the North West Shelf venture, which made a $1.5 billion financing commitment last summer for a fifth liquefaction train there, raising capacity to 16.3 million tonnes annually, or 2.1 bcf a day.

The six equal partners in that project were so bullish on the market they didn’t wait for customer commitments. Besides Woodside, the partners are subsidiaries of BHP Billiton, BP, Chevron and Shell, plus Japan Australia LNG (Mitsui and Mitsubishi).

Woodside is also pushing ahead with its fully owned Pluto project, where Tokyo Gas Co. recently made a 20-year commitment.

Most U.S. LNG terminals are being financed with long-term commitments for capacity from major multinationals. At the Freeport project, for example ConocoPhillips has bought a billion cubic feet of daily capacity, which could come from Qatar, Venezuela, or other sources. Dow Chemical Co. has spoken for half a billion cubic feet at Freeport. For a planned Phase 2, a consortium of ConocoPhillips and Mitsubishi has long-term contracts for half a billion cubic feet.

For now, supply is tight and spot market cargoes are rare. With growing demand from Europe and Asia, it may take a long time for a competitive spot market for LNG to develop. In North America, finding adequate supply could be a major issue in the next few decades. The Energy Information Administration figures U.S. consumption will rise by 20 percent by 2025, while supplies from domestic wells are expected to rise by only 10 percent.

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