Excelerate halts US LNG export project

OREANDA-NEWS. September 03, 2015. Excelerate Energy has ended its LNG export project in south Texas because of falling oil prices and other economic factors.

Texas-based Excelerate today asked the US Federal Energy Regulatory Commission (FERC) to withdraw its application to build a floating LNG export project in Lavaca Bay, Texas, making it the first company to halt its FERC proceedings for US LNG exports.

It is unclear if Excelerate is the first company to stop development of a US LNG export project because of low oil prices, as a number of other proposed projects have not entered the expensive FERC construction approval process and have not announced any progress since oil prices started to plummet last summer. Dozens of projects have applied to export up to 48 Bcf/d ofn natural gas from the contiguous US, far more than the market will support.

"Following an internal evaluation of the economic value of the project, Excelerate has determined that it will no longer pursue the project proceedings in the captioned dockets," Excelerate said in a letter to FERC today.

Excelerate in December asked FERC to suspend its review of the project, saying, "Recent global economic conditions — including, among other things, a steep decrease in the price of oil — have created uncertainty regarding the economics of the project."

Excelerate, which pioneered the development of onboard LNG regasification vessels, did not return an Argus inquiry seeking additional comment.

The company told Argus in June 2014 that it had spent about \\$50mn in the FERC approval process and expected to spend more.

The economics of US export projects are based on a large differential between domestic gas prices and global oil prices, as most long-term LNG contracts to Asia are linked to oil prices at an indexation rate of about 15pc. That means at oil prices of \\$100/barrel, the delivered price to Asia oil-linked contracts would be about \\$15/mmBtu, but at oil prices of \\$50/barrel the oil linked price falls to about \\$7.50/bl.

The delivered price of US LNG to Asia is estimated to be \\$10-\\$12/mmBtu at Henry Hub prices of \\$3-\\$5/mmBtu.

The US Department of Energy (DOE) in 2012 authorized Excelerate to export 10mn t/yr of LNG, equivalent to 1.38 Bcf/d of gas (39mn m?/d) of gas, from Lavaca Bay to countries that have free trade agreements with the US. Excelerate applied to export the same volume to non-FTA nations, but the DOE would not have reviewed that application until the project received FERC environmental approval. Excelerate told FERC today it will withdraw its DOE applications.

Five LNG projects are being built in the US with combined peak capacity equivalent to 9.5 Bcf/d of gas, approaching Qatari output of 9.9 Bcf/d. Those projects were financed with long-term capacity deals signed before oil prices fell, and it is unclear how many more US projects will reach a final investment decision.

In February BG delayed a final investment decision on its proposed Lake Charles LNG export project in Louisiana to 2016 from 2015 because of falling oil prices, and the fate of that project became more unclear after Shell in April announced its intention to buy BG for ?47bn (\\$72bn).

In early July, FERC said it might suspend its review of the proposed Cambridge Energy Floating LNG project in Louisiana partly because it was concerned with its financial feasibility, but later that month the project said it planned to continue to regulatory process and challenged FERC's authority to suspend the review.