Permits for construction of new LNG terminals are coming hot and fast now, as companies jockey to get to the head of the line. That’s because those at the tail end may never get shovels into the ground or ships to their planned docks.
ChevronTexaco received a permit from Mexico’s energy regulatory commission for a new liquefied natural gas terminal off the coast of Baja California, the company announced Jan. 6. And Cheniere Energy’s Freeport LNG terminal received final approval from the Federal Energy Regulatory Commission to start construction in Texas, that company said Jan. 11. Work there is primed to begin this month on the first new U.S. LNG terminal in two decades, with completion in late 2007.
The ChevronTexaco terminal, expected to cost about $650 million, will have initial capacity to regasify 700 million cubic feet daily, but can be expanded to double that amount. It will be built on a platform off one of the Coronado Islands, eight miles from Tijuana off the Baja mainland and just south of the U.S. border and the U.S. Navy base at San Diego.
Construction is expected to start later this year or early in 2006, with initial deliveries probably in 2008. Permits from Tijuana and the Baja California state are still needed before work can begin.
California Dreamin’ChevronTexaco says the facility is intended to meet Mexican energy needs, though John Gass, head of ChevronTexaco Global Gas, noted that “it also provides a potential outlet to supply neighboring markets with any excess capacity.”
That would be California, of course, a market that has gotten a lot of attention from suppliers and terminal promoters despite the fact that the ChevronTexaco project alone could supply 10 percent or so of the state’s current demand for natural gas of 6.5 billion cubic feet daily.
Supply for the ChevronTexaco terminal likely would come from Australia’s Gorgon field, where Chevron is operator and has a 57 percent share.
The Cheniere project, on Quintana Island near Freeport, Texas, would have initial capacity of 1.5 billion cubic feet daily. All of that capacity is already contracted to ConocoPhillips (1 billion cubic feet per day) and Dow Chemical Co. (500 million cubic feet). Freeport LNG plans to seek permits next month to double that capacity, with ConocoPhillips holding an option for 500 million additional cubic feet if the expansion goes through. Cheniere is a limited partner in Freeport LNG, with a 30 percent share of the project that is expected to cost in excess of $500 million.
Sempra project aheadAlready set to begin construction on the West Coast not far from the ChevronTexaco project is a Sempra Energy Inc. terminal that would regasify a billion cubic feet a day initially, half for Mexico and half for the U.S. market. Sempra LNG awarded $670 million in contracts earlier in January for its Energia Costa Azul terminal 14 miles north of Ensenada. Construction of a road to the site has already started, with facility work to begin soon.
Sempra also announced $500 million in construction contracts for its Lake Charles, La., terminal on Jan. 3. Those contracts are underpinned by a five-year, $1.2 billion credit arrangement reached with Citibank in December.
On the sales side, Sempra announced Jan. 11 that is has a $1.4 billion agreement to supply gas to Mexico’s state-owned electric utility, Comision Federal de Electricidad. The contract calls for Sempra to supply an average of about 130 million cubic feet daily for 15 years, starting in 2008, when the LNG terminal is to be completed.
As for supply, Sempra already has signed $18 billion in 20-year supply agreements with the Shell-led Sakhalin venture and with BP-led Tangguh, in Indonesia. Those pacts call for shipping more than 110 million metric tons of LNG, which would be turned into 5.3 trillion cubic feet of gas, or about 750 million cubic feet daily for the two decades.
Shell, which is partnering with Sempra on its Baja terminal 40 miles south of the U.S. border, is also 29 percent owner of Gorgon. The Gorgon venture signed initial agreements back in August 2003 to supply LNG to both the Sempra and the ChevronTexaco terminals.
Sempra also has had preliminary discussions with backers of an Alaska project to pipe gas from the North Slope south to Valdez and then turn it into LNG. The Alaska LNG would be for an expansion of Sempra’s Baja facility, as initial capacity has been contracted.
Australian pushMeanwhile, Australia’s government is pushing hard to lock in a major share of the California gas market for its various LNG projects. Federal Industry Minister Ian Macfarlane is meeting with officials in both Mexico and California this month. He’s hoping to help producers win LNG contracts that could total US$40 billion or more.
Macfarlane was scheduled to leave for Mexico on Jan. 15, then head to California. He has said Australia aims to capture as much as a third of the California market, which would mean LNG equivalent to more than 2 billion cubic feet daily. That’s about half the initial capacity of the proposed gas line from Alaska’s North Slope to the Lower 48. Whether and how soon the California market could absorb that much gas is an open question.
Delay for BHPFarther north, the Cabrillo Port floating terminal project offshore California was on a hold of sorts as the Coast Guard suspended its review temporarily. The U.S. agency has a specific period of time to review projects, but it can “stop the clock” to obtain additional information.
The recent move, announced by the company on Jan. 10, is the second such hold, according to BHP Billiton, which says it won’t affect the prospects for the proposed facility about 25 miles off the coast.
The company originally hoped to have a decision on the proposal by the end of 2004, but that was set back to the middle of this year. BHP Billiton wants the terminal to receive LNG from its offshore Scarborough field, which is owned jointly by ExxonMobil. It would regasify 800 million cubic feet a day.
Another Australian powerhouse, Woodside, is involved in an offshore terminal proposed for a former producing platform off Malibu. Woodside is already in the LNG business with its North West Shelf operation. A terminal is also proposed in San Diego itself.
But all of the proposals aren’t likely to turn into actual terminals, especially in the limited West Coast market. And this race is likely to go to the swift, since there is only so much market to tap, even with Mexico factored in. Economies of scale will favor expansion of existing terminals in the future rather than construction of new ones.