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http://www.argusmedia.com/news/article/?id=1434464
Magnolia LNG to pay at least $18mn for Louisiana lease
31 Mar 2017, 9.46 pm GMT
Houston, 31 March (Argus) — Magnolia LNG will pay at least $18mn to the Port Lake Charles, Louisiana, by signing a long-term lease, according to documents obtained by
Argus.
The $4.5bn Magnolia LNG export project this week agreed to a 30-year lease for 110 acres of port-owned land, where it intends to build its terminal.
Magnolia LNG, owned by Australia's Liquefied Natural Gas Limited (LNGL), executed the agreement even though it has not made an investment decision to build the facility. Magnolia LNG in 2013 paid the port $725,000 for a four-year option to execute the lease, and it would have lost its exclusive rights to the site if it did not finalize the lease this month.
The project initially expected to start construction this year but it has been delayed.
Under the lease agreement approved on 27 March by the port commissioners, Magnolia will pay the port for 30 years an annual base fee of $306,000, which would be adjusted for inflation. It will also pay a minimum annual throughput charge of $372,600, beginning when the facility is placed in service but no later than December 2022, even if the project is not built.
The daily throughput charge is $0.0018/dekatherm, so the annual fee could climb to about $736,000 if Magnolia LNG builds all its planned capacity of 8mn t/yr, equivalent to 1.08 Bcf/d (31mn m³/d) of gas. The throughout charge also would be adjusted for inflation.
The combined minimum costs over 30 years, without adjustments for inflation, would be about $18mn.
Magnolia LNG said yesterday it would not comment on the terms of the lease. Company officials could not be reached today.
If Magnolia LNG is not built and wants to terminate the long-term lease, it would still be obligated to pay the minimum fees for the entire 30-year term, port officials told
Argus.
The port expects the lease to begin in early April after all signatures are obtained.
The agreement allows Magnolia LNG to sublease, which could mitigate its losses. Rent in the first year would be reduced by $100,000 in exchange for the option payment. which has four 10-year extension options.
Magnolia LNG has said it is confident it will make a positive investment decision his year or next to allow it to come on line in the early 2020s, when the current global LNG supply glut is expected to recede.
Magnolia LNG has said it needs to finalize liquefaction capacity contracts for at least 6mn t/yr to secure financing before making an investment decision. So far it has signed only one binding deal for 2mn t/yr with the UK's Meridian LNG.
Lower oil prices since mid-2014 have made it difficult for US LNG export projects to secure customers, as the economics of US LNG exports are based on a wide differential between domestic gas prices and global oil prices. Most long-term Asian LNG contracts are linked to oil prices.
Dozens of LNG export projects have been proposed in the contiguous US, but only six are being built as they signed long-term capacity deals with customers before oil prices fell. Those projects have combined peak capacity of 75mn t/yr, almost equaling Qatari capacity of 77mn t/yr.
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