Cheniere
Energy Partners L.P. (CQP) is moving ahead with the construction of
facilities to liquefy and export natural gas in Louisiana, bringing the
U.S. one step closer to becoming a major exporter of the commodity.
The
company said Thursday it had given engineering contractor Bechtel Oil,
Gas and Chemicals Inc. the green light to start building two
liquefaction trains at its Sabine Pass, La., import terminal. The first
liquefaction train, which will turn natural gas stemming from booming
U.S. shale fields into liquid that can be exported overseas, is expected
to start operating as early as 2015, and the second train will start
six to nine months later, the company said.
Each
train will be able to export about 2 billion cubic feet a day of gas to
countries where the commodity costs exponentially more than the
domestic U.S. price, now at $2.90 a million British thermal units. The
U.S. produces about 72 billion cubic feet a day of natural gas.
Cheniere
signed 20-year supply contracts with the U.K.'s BG Group PLC (BG.LN),
GAIL (India) Ltd. (532155.BY) and Korea Gas Corp. (036460.SE). The
agreements enabled Cheniere to obtain the hefty financing needed for the
project.
The
U.S. exports relatively small quantities of LNG to Japan out of Alaska,
but the Sabine Pass facility would be the first terminal to do so out
of the lower-48 states. Such a move is a big hope among U.S. natural gas
producers, which became victims of their own success when they
unleashed unexpectedly massive amounts of the commodity from shale
formations. A market glut for natural gas led prices for the commodity
to decade-low levels in April; exports could help ease that glut and
give producers access to more profitable markets abroad.
"For the whole industry, it is a step forward," said Morningstar analyst Mark Hanson.
However,
some U.S. chemical producers, which use natural gas to manufacture
their wares, are against exporting large quantities of the commodity
because it could help raise its price to about $6 a million British
thermal units by 2016, according to some experts. But prices at that
level could also spur more drilling and prevent further increases, said
Leslie Palti-Guzman, an analyst at global risk firm Eurasia Group.
Cheniere,
which originally built the Sabine Pass facility to import natural gas
at a time when experts perceived there would be shortages of the
commodity, began its effort to turn it into an export terminal about two
years ago.
"It
is a testament to the flexibility of the U.S. markets and institutions
that a small company like ours was able to accomplish so much in a short
time," said Cheniere Chief Executive Charif Souki.
Cheniere
expects the project to cost about $5.6 billion, funded by $2 billion of
equity and $3.6 billion of debt. The effort is backed by private equity
firm Blackstone Group (BX).
"We
are pleased to provide the growth capital to fund the construction of
the first LNG export facility in the continental United States, creating
thousands of jobs for American workers and providing significant
benefits to the U.S. economy," David Foley, senior managing director of
Blackstone, said.
Cheniere
is the only company that has received approval from the Obama
administration to export LNG to countries lacking a free-trade agreement
with the U.S.
Nearly
10 other proposals are pending before the Energy Department, but the
agency says it won't approve any additional projects until it finishes a
comprehensive review of the exports' impacts on the U.S. The Energy
Department is expected to complete that review later this summer