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2015-10-02 / Front Page

Cheniere to begin export of Marcellus and Utica gas as LNG in 2018

Regional Business Analyst

An artist's rendition of Cheniere's Corpus Christi LNG export facility. 
Photo courtesy of Cheniere An artist's rendition of Cheniere's Corpus Christi LNG export facility. Photo courtesy of Cheniere The Marcellus and Utica shale plays are going to gain another connection to the global market in 2018. On Sept.10, Kinder Morgan, the largest energy infrastructure company in North America, announced it signed a 20-year deal to begin shipping 385 million cubic feet per day of southbound natural gas in 2018 from the Natural Gas Pipeline Company of America’s (NGPL) expanded Gulf Coast pipeline system to Cheniere Energy’s Corpus Christi LNG export facility on the Texas coast. The eastern portion of the southbound gas will be coming from wells in the Marcellus and Utica shale plays.

Kinder Morgan, which owns an interest in or operates approximately 84,000 miles of pipelines, operates the NGPL pipeline system and owns a 20 percent interest in the company. NGPL plans to invest about $212 million in infrastructure to complete the first phase of the Gulf expansion project, which will increase NGPL’s total southbound capacity from multiple receipt zones, including the 1,698-mile Rockies Express Pipeline (REX) that will interconnect in Illinois with gas coming from Appalachian shale plays for transport to existing and growing markets along Texas and the Louisiana Gulf Coast.

“We are pleased to move forward with this project as gas production increases in the Utica and Marcellus shale and markets continue to grow along the Gulf Coast,” said David Devine, president of NGPL.

“Additionally, we are delighted to provide transportation for Cheniere to bring attractively-priced supply to their LNG export facility being developed near Corpus Christi, Texas.”

Cheniere received approvals for the project from FERC and DOE on May 12, 2015. On May 13, Cheniere reached its final investment decision and issued the notice to proceed with construction on the first two “trains” of the new LNG plant to Bechtel Oil, Gas and Chemicals, Inc., a global engineering, construction and project management company, headquartered in Houston.

“Once again, we have the pleasure of working with Kinder Morgan and NGPL to secure transportation capacity that will provide additional certainty of gas supply for the Corpus Christi Liquefaction Project, which is now under construction,” said Corey Grindal, VP of supply and marketing for Cheniere.

“It’s important that we secure access to pipeline capacity to ensure reliability and deliverability of natural gas to our liquefaction facility.”

The approvals for the Corpus Christi LNG project were aided by last year’s change in the DOE’s policy to prioritize reviews for non-Free Trade Agreement LNG export applications whose projects had already been through a regulatory environmental review. Cheniere’s export terminal is located at a site that was previously permitted as a regasification terminal for LNG imports. Cheniere’s $18 billion Sabine Pass LNG plant in Louisiana had also been an import terminal and was the first plant in the U.S. to be permitted to export LNG.

An LNG “train” is a liquefied natural gas plant’s liquefaction and purification facility housed in a long, narrow building. The LNG process inside the train begins with removing impurities in the gas such as water, carbon dioxide, sulfur and some of the heavier hydrocarbons such as propane and ethane. The purified gas is then condensed by refrigeration to below -257.8° F (the boiling point of methane at atmospheric pressure). The liquefaction process requires very strict safety measures and precautions due to the flammable nature of the gas.

Liquefaction is necessary to make transporting natural gas by ship commercially viable. LNG takes up about 1/600th of the volume of natural gas. LNG weighs about 45 percent as much as water and is odorless, colorless, non- corrosive and non-toxic.

Cheniere’s Corpus Christi liquefaction project is being designed with three trains, which will have an expected aggregate nominal LNG production capacity of up to 13.5 million tonnes per annum (mtpa). The facility will be constructed in three phases, with each 4.5 mtpa LNG train to begin operations about six to nine months after the previous train has been built.

The $11.5 billion cost for the first two trains, two LNG storage tanks, one dock and the natural gas supply pipeline will be funded with $3.1 billion of project equity and $8.4 billion of debt.

Although Cheniere has not released the names of its foreign customers for its Corpus Christi facility’s LNG, it has released the name of its first customer for LNG from its Sabine Pass export facility. Cheniere entered into sales arrangements with Électricité de France, S.A. for the delivery of liquefied natural gas cargoes from the Sabine Pass LNG facility to the Dunkerque LNG terminal in France. The sales arrangement through 2018 includes the delivery of up to 26 cargoes, which is about 100 million MMBtus of LNG.

The Future of U.S. LNG Exports

The U.S. has 110 LNG import terminals that could be converted to LNG export facilities. Given America’s abundance of natural gas, the U.S. has the potential to become the largest exporter of LNG in the world, surpassing the leading LNG exporters, Qatar and Australia. However, given the multibillion price tag for turning these facilities around, most of them are likely to remain idle or repurposed for other industrial processes.

“Even though the market for exporting liquefied natural gas become crowded, smaller companies now have a chance to enter the LNG market without investing the billions of dollars Cheniere spent on its nearly complete Sabin Pass terminal,” said Cheniere CEO Charif Souki at IHS CERAWeek in April in Houston.

“Such micro-projects would not garner 20-year contracts and would likely reap poor profits at the start, a gamble not suitable for every energy investor, but the payoff down the road could be big.”

More than 30 projects of various sizes are in the queue for federal approval to liquefy natural gas and export it to non-FTA countries to take advantage of abundant supplies of cheap natural gas from U.S. shale plays. However, due to the low price of oil, there’s been growing concern by potential investors that projects not already under construction will never get built.

In addition, the demand for natural gas in Asia is no longer as robust as it once was, so it might be difficult for LNG exporters to secure enough customers to buy all the gas they want to sell. .

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