Further commentary, insights and quotes from CFO Mike Mott following FERC's Order.
Houston, 15 April (Argus) — The US Federal Energy Regulatory Commission (FERC) today approved construction of the Magnolia LNG export project in Louisiana and associated pipeline modifications to bring feed gas.
Magnolia previously said it plans to make a final investment decision (FID) this year, but today the company told Argus the timing is not clear because low oil prices have made it difficult to finalize long-term capacity deals to finance the $4.35bn project.
"I don't think we can say if we will make FID this year," said Mike Mott, chief financial officer of Australia's LNG Limited, a 50pc owner of the project. "We need additional offtake and the markets are difficult right now."
FERC approval will significantly help Magnolia LNG attract customers, he added.
Magnolia LNG, which would be located near Lake Charles, Louisiana, plans to build four liquefaction trains with capacity of about 8mn t/yr, equivalent to about 1.08 Bcf/d (31mn m³/d) of gas. The project had been scheduled to come on line in early 2019 if it made an FID early this year.
Magnolia has signed a binding 20-year deal to sell up to 2mn t/yr of capacity to Meridian LNG Holdings but needs to sign additional long-term deals of at least 4mn t/yr, for a total of 6mn t/yr, to make an FID. Meridian's supplies would come from the planned third or fourth liquefaction train.
Magnolia had reached preliminary 20-year deals with Swiss trading firm Gunvor and Spain's Gas Natural Fenosa for each company to buy 1.7mn-2mn t/yr of the capacity from the planned first and second trains, respectively.
Mott said today that Magnolia is negotiating with a number of potential customers, and declined to comment as to whether Gunvor or Gas Natural will finalize those deals.
FERC approval will pave the way for Magnolia to receive a US Department of Energy license to export up to 8mn t/yr of LNG to countries that do not have free trade agreements (FTAs) with the US, a group that comprises most of the world's major LNG markets, Mott said. Magnolia hopes to get that license by the third quarter. It already has an FTA license for up to 8mn t/yr.
The current market rate for US liquefaction capacity is about $2.50-$2.75/mmBtu, Mott said, but he added that is not necessarily the fee that Magnolia LNG is seeking. Magnolia has declined to say what it will charge to customers, but it has said it expects to make pre-tax earnings of at least $2.50/mmBtu and it will have operating expenses of 40-50¢/mmBtu, so under those scenarios liquefaction charges likely would be about $2.90-$3.10/mmBtu.
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.
Magnolia will receive feed gas from the 132-mile (212km) Kinder Morgan Louisiana pipeline. Midstream company Kinder Morgan would add bidirectional capability to the pipeline to bring as much as 1.35 Bcf/d of gas to the terminal.
