Position Secured In The Dynamic USA LNG Market

abarrelfullabarrelfull wrote on 18 Jan 2013 11:51
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19 December 2012

The Directors of Liquefied Natural Gas Limited (the Company; ASX: LNG) wish to advise that:

  • On the 18 December 2012, the Company’s wholly owned subsidiary, Magnolia LNG LLC, filed an application with the US Department of Energy, Office of Fossil Energy (US DOE/FE) to export up to 4 million tonnes per annum (mtpa) of LNG to countries that have Free Trade Agreements (FTA) with the United States of America (US);
  • Magnolia LNG LLC (Magnolia LNG) has executed an exclusive site access agreement with the Port of Lake Charles Harbour & Terminal District (Port), in the US State of Louisiana, on which it is proposed to develop a 4mpta LNG production and export facility, with the potential to expand to 8mpta at a future date;
  • The project site has direct access to a number of existing underutilised gas pipelines, which directly access the highly liquid US gas market;  
  • Magnolia LNG has commenced discussions with several potential partners on a draft Tolling Agreement; and
  • Magnolia LNG will materially benefit from the recently completed front end engineering design for the first LNG train (1.9 mtpa) of the Company’s 100% owned 3.8 mpta LNG Project in Gladstone, Queensland, Australia.

The following provides an outline of the current status of Magnolia LNG:

1) US DOE/FE APPLICATION:

  • The Company expects DOE/FE approval in February/March 2013.   Under the relevant US law, the DOE/FE is required to approve export of LNG to FTA countries within 90 days of an application being filed;
  • On approval, which is project site specific, Magnolia LNG is able to export LNG to FTA countries in its own right and/or as agent for selected LNG tolling parties and LNG buyers.
  • On the 3 December 2012, the DOE/FE released an independently commissioned report on the impact of US LNG exports on the US economy and domestic gas markets.  In summary, the report was positive for LNG exports and concluded that:
    • across all the scenarios studied, the US is projected to gain net economic benefits from allowing LNG exports; and
    • no material increase in domestic gas prices will occur in the short term if the US allows LNG exports.  In the longer term, the price should not increase by more than $1.11/Mscf by 2020.

The report is now open for public comment, following which the US Government is likely to establish policy guidelines for the export of LNG to Non‐FTA Countries.

2) SITE ACCESS / OPTION TO LEASE

  • The Magnolia LNG project site is some 90 acres with direct access to the Calcasieu Channel and an industrial canal along which LNG ships already supply LNG to the existing Trunkline LNG terminal.  
  • On 17 September 2012, the Company entered into a six month site access agreement with the Port to evaluate the site for a potential LNG project.  Over the last few months, the evaluation has been positive and all indications are that the site is capable of accommodating an LNG production and domestic/export facility of up to 8 mpta.
  • On 12 December 2012, the Port agreed to the assignment of the site access agreement to the Company’s recently incorporated wholly owned subsidiary, Magnolia LNG LLC, and to provide exclusivity during the residual term of the site access agreement.
  • The Port has provided a draft Term Sheet detailing the key commercial terms for the proposed legally binding Option to Lease Agreement between the Port and Magnolia LNG.

3. TOLLING AGREEMENT

  • The Company has commenced discussions with a number of potential partners on the basis of a tolling arrangement (Tolling Party), whereby the Tolling Party will arrange and deliver their own gas to the Magnolia LNG project, for liquefaction and loading onto LNG ships arranged by the Tolling Party.  Therefore, Magnolia LNG would only be responsible for building, owning and operating the LNG facility and will receive a fixed monthly capacity fee and operating and maintenance fee, plus a process fee for actual LNG loaded onto LNG ships.
  • Two underutilised gas pipelines traverse the site, with another two pipelines located within three miles of the site.  These pipelines are able to physically access the US gas market and the Henry Hub.
  • This tolling arrangement is a common model being adopted by many proposed US LNG export projects and is identical to the model proposed with PetroChina Australia for the Company’s Gladstone LNG Project.
  • The Company has issued a draft Tolling Agreement Term Sheet to several potential Tolling Parties, with the intention of working towards selecting a Tolling Party (or Parties) in the first half of 2013.

4. FEDERAL ENERGY REGULATORY COMMISSION (FERC)   

  • Magnolia LNG has commenced preparing its Pre‐File Application with FERC, the lead US agency for processing and co‐ordinating all approvals, including environmental approvals, for US LNG projects.
  • Preliminary work to date has included risk and safety studies for the LNG facility; a Waterways Suitability Assessment; geotechnical studies and other activities required to ensure a smooth and timely approvals process.
  • Key to the approval process will be the benefit of using all the front end engineering design already undertaken on the Company’s Gladstone LNG Project and use of the Company’s highly efficient and low cost OSMR® technology.  It is expected that a significant component of the base documentation required for FERC, will be able to be sourced from the Gladstone LNG Project.

5. CAPITAL COST AND FUNDING  

  • The Company estimates a capital cost of US$2.2 billion for the proposed, first stage, 4 mtpa LNG plant, based on the significant engineering, procurement and construction price build‐up work  undertaken on the Gladstone LNG Project (as detailed in the Company’s ASX announcement dated 18 December 2012).
  • Based on this capital cost, and under confidentiality agreements, the Company has provided its proposed tolling fees to potential Tolling Parties.    Publicly available information on other LNG projects indicates that Magnolia LNG’s tolling fee will be at the lower end of the fee range, which is supported by the interest being shown in Magnolia LNG by prospective Tolling Parties.
  • The Company has also entered into Confidential Agreements with several parties who have expressed interest in acquiring an equity position in Magnolia LNG.

The Company’s Managing Director and Joint Chief Executive Director, Maurice Brand, said that “Magnolia LNG is an excellent opportunity to capitalise on the substantial development work and investment that has been made in the Company’s Gladstone LNG Project.    Essentially we are replicating a significant component of the Gladstone LNG Project’s technical and engineering development work in the US market, a market that is expected to dominate new global LNG supply for the next decade.”

“Whilst the Company remains very focussed on concluding the EPC contract; Tolling Agreement and financing for the Gladstone LNG Project, to enable a final investment decision and recommencement of construction in 2013, Magnolia LNG provides the prospect for the Company to proceed to construction of a second LNG project in 2015/16.” said Mr Brand.


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