Cheniere gets FERC approval for Sabine Pass LNG terminal

Decision closely followed ChevronTexaco finalizing Sabine Pass capacity agreement

Allen Baker

Petroleum News Contributing Writer

Cheniere Energy Inc. got good news on two fronts as the Federal Energy Regulatory Commission gave its approval to the Sabine Pass LNG terminal and ChevronTexaco’s global gas subsidiary approved a 20-year contract for liquefaction capacity there.

FERC approval came Dec. 15, just a couple days after ChevronTexaco finalized its agreement for Sabine Pass capacity. The Louisiana terminal, with a capacity of 2.6 billion cubic feet daily, is the largest FERC has ever approved. Construction is expected to begin early next year, with first shipments in 2008.

With major commitments from Total as well as ChevronTexaco, tiny Cheniere appears to be on pretty firm ground. The Dec. 13 deal calls for Cheniere to regasify 700 million cubic feet daily for the San Ramon, Calif., energy giant, which will provide the LNG and then buy it back after it’s put into the pipeline system. Options in the contract allow adjustments up or down in that total, to as little as 500 million cubic feet or as much as a billion.

Cheniere stockholders got a jolt less than a week earlier as ChevronTexaco announced it would not take an equity interest in the terminal. That was part of the preliminary agreement in November between the two companies.

The announcement on the equity deal falling through was twinned with the issuance Dec. 9 of 5 million new Cheniere shares at $60 each. The stock dove below $50 for a period before recovering. It was trading around $63 a share on Dec. 15, when the FERC approval came.

Just how the equity deal fell through isn’t clear, but there were rumors that ChevronTexaco wanted a bigger chunk than Houston-based Cheniere was willing to yield, especially with the additional $300 million from the new stock issuance. But the capacity deal wasn’t torpedoed, as it turned out.

Cheniere recently announced a second terminal project about 20 miles from Sabine Pass. Both will cost about $750 million, both are in sparsely-populated Cameron Parish, just across the border from Port Arthur, Texas, and both are 100 percent Cheniere owned. Cheniere also has interests in Texas terminal projects near Corpus Christi and Freeport. The Freeport terminal got FERC approval in June, and the Corpus Christi terminal got a favorable draft environmental statement from the agency in November.