OREANDA-NEWS. The Magnolia LNG export project in Louisiana has signed a binding 20-year deal with Meridian LNG Holdings, the first binding long-term deal signed for US liquefaction capacity since the steep drop in crude prices.

Under the deal Magnolia would sell up 2mn t/yr of liquefaction capacity, equivalent to 270mn cf/d (7.8mn m?/d) of gas, to Meridian LNG Holdings.

Meridian plans to deliver the supplies to its proposed floating Port Meridian import terminal off northwestern UK.

Meridian will sell its Magnolia supplies to German utility Eon under a 20-year deal at prices linked to the UK's National Balancing Point liquid trading hub, so the spread between oil prices and US gas prices is not a major issue for this deal. Some supplies could be sent to other markets to take advantage of arbitrage opportunities.

The deal is contingent on Magnolia getting all necessary regulatory approvals and making a final investment decision (FID) by 30 June 2016.

Magnolia plans to make an FID in the first quarter of 2016 and start exporting in December 2018. It plans to install up to four 2mn t/yr trains, each coming on line about three months after the previous train, with full production to be reached in 2019.

Meridian would receive LNG from either the third or fourth train, starting as early as mid-2019, Meridian chief executive Roger Whelan told Argus.

Magnolia has signed preliminary deals to sell Guvnor subsidiary Brightshore Overseas and Spanish utility Gas Natural Fenosa up to 2mn t/yr of capacity each for 20 years from trains 1-2. Those deals, as well as Meridian's contract, are for 1.7mn t/yr of firm capacity and up to 300,000 t/yr of interruptible capacity to be offered by Magnolia at its discretion.

Magnolia likely will make an FID only if it finalizes the other two deals, allowing it to install at least three liquefaction trains with combined capacity of 6mn t/yr, Whelan said. Magnolia could not be reached for comment.

If Magnolia makes an FID, Meridian will make an FID soon after, Whelan added.

Meridian, in a partnership with Norwegian shipping company Hoegh LNG, plans to moor a floating storage and regasification unit (FSRU) in Morecambe Bay offshore Barrow-in-Furness in the northwest of England.

The FSRU and associated infrastructure for the import facility have an estimated cost of $700mn, Whelan said. In addition, Meridian would acquire two LNG carriers to bring supplies from Magnolia.

The contract with Eon guarantees throughput of about 400mn cf/d on an annualized basis, with guaranteed throughput of 750mn cf/d on peak demand days, Whelan said. Meridian is exploring other potential sources of LNG to fulfill the contract, including eastern Canada, west Africa and Trinidad and Tobago.

Magnolia said today that because of interest in its project, it is asking its contractor, a venture of KBR and South Korea's SK, to provide a fixed-price, turnkey price for the full 8mn t/yr project, rather than the originally planned $2.2bn, 4mn t/yr first phase.

Sources familiar with the project have said Magnolia is charging liquefaction fees in the range of $2.75-$2.80/mmBtu, significantly less than the fees of $3.50/mmBtu that Cheniere Energy has been charging for its project in Corpus Christi, Texas.

Magnolia customers will have to secure their own gas. Meridian is exploring various options for doing that, including its top choice of acquiring its own gas resources. It is also exploring buying US gas on a netback basis to the NBP, which could provide producers with higher profits while alleviating Meridian of the need to hedge Henry Hub prices, something that is becoming more expensive to do.

Magnolia is equally owned by Australia's Liquefied Natural Gas Limited (LNGL) and New York-based Stonepeak Infrastructure Partners. LNGL is also developing the 8mn t/yr, $4bn Bear Head LNG export project in eastern Canada and owns the patented liquefaction technology that would be used at Magnolia and Bear Head.

Meridian is owned by Toronto-based investment fund West Face Capital, which also is developing the planned Port Ambrose import terminal off New York. Whelan said Port Ambrose would likely come on line one year after Meridian, but it is unclear if it would get LNG from Magnolia because the US Deepwater Port Act may not allow it to receive domestic gas.