Freeport LNG inks deal to sell natural gas to Japanese utilities

Two of Japan’s largest utilities have inked a deal to buy liquefied natural gas from a Freeport,Texas, plant over the next two decades.

Under the contract with Freeport LNG Development, Osaka Gas Co., and Chuba Electric Power Co., would take up to 4.4 million tons of liquefied natural gas annually from the facility.

The move allows Freeport LNG to take advantage of Japan’s thirst for natural gas, following the Fukushima disaster that spurred a shutdown of dozens of nuclear power plants in the country. And it gives U.S. producers another potential avenue for exporting natural gas to Asian markets, where the fossil fuel currently fetches prices roughly five times what it commands in the United States.

At the same time, Japanese companies are trying to lock in lower natural gas prices by taking advantage of the abundant U.S. supply. Earlier this year, Mitsubishi and Mitsui announced they were collaborating with Sempra Energy to develop an export facility in exchange for rights for some of the LNG that would be liquefied at the Louisiana plant.

Freeport is still waiting for federal officials to sign off on its proposal to change its existing receiving and regasification terminal into an export facility capable of liquefying natural gas on site.

Although federal regulators recently approved Houston-based Cheniere Energy’s plans to begin exporting liquefied natural gas from its Sabine Pass terminal in southwest Louisiana, the Energy Department has put off verdicts on similar applications from Freeport and at least six other companies.

The Federal Energy Regulatory Commission is preparing to do an environmental study on Freeport LNG’s $7 billion project.

The company anticipates launching construction in late 2013 and beginning operations four years later. Ultimately, Freeport LNG expects to be able to export roughly 1.9 billion cubic feet of natural gas daily, (or 13.2 metric tons annually) while retaining equipment for receiving imports if necessary.

The deal with Osaka and Chuba locks up 100 percent of the liquefied natural gas that would be processed by one of three trains Freeport LNG plans on constructing at the facility. The company said in a news release today that it is negotiating contracts for the LNG processed at the other two planned trains.

Freeport LNG CEO Michael Smith said the contract with the Japanese utilities would help pay for later phases of construction at the facility.

“As two of the largest natural gas and electric utility service providers in Japan, having liquefaction tolling agreements with Osaka Gas and Chubu Electric provides the strong end-user credit support necessary to fully finance the initial train of the liquefaction project,” Smith said in a statement.

The Freeport LNG receiving terminal was built beginning in 2005, when energy analysts envisioned the U.S. would be importing plenty of natural gas for years to come. But technological advances in drilling and hydraulic fracturing have unlocked natural gas from dense rock formations across the United States, upending that formula. The resulting glut of natural gas in the U.S. has sent prices downward and encouraged producers to search for new markets to sell the fossil fuel.

The Obama administration and policymakers in Washington are struggling to decide how much U.S. natural gas should be exported, amid concerns that expanded foreign sales would boost prices of the fossil fuel at home and threaten a domestic manufacturing renaissance.

A study commissioned by the Energy Department evaluating how U.S. prices would be affected is slated to be released this summer. Administration officials have said that analysis will drive decisions about export licenses.

The United States already exports some natural gas (mostly by pipelines) to Mexico, Canada, Brazil and other countries, but the flurry of proposals to liquefy natural gas and sell it to foreign consumers would mean a big jump in exports.

Applications filed with the Energy Department could put the United States on track to export about 16 billion cubic feet of liquefied natural gas each day — nearly a quarter of U.S. production in 2011.

Press Release
FREEPORT LNG SIGNS 20-YEAR LIQUEFACTION TOLLING AGREEMENTS WITH OSAKA GAS AND CHUBU ELECTRIC
http://www.freeportlng.com/PDFs/20120731_pr.pdf

Liquefaction Project Status and Schedule
http://www.freeportlng.com/Project_Status.asp

Dec-2010 - Commencement of Front End Engineering Design (FEED)
Dec-2010 - Request to FERC to Initiate Pre-filing Review Process
December 2010 & 2011 - Application to DOE for Long-Term Authorization to Export LNG to non-FTA countries
Aug-2012 - Filing of formal NGA Section 3 Application to FERC
Dec-2012 - Issuance by FERC of Environmental Assessment/Environmental Impact Statement
2012 - DOE’s Issuance of Authorization to Export LNG to non-FTA Countries
2Q 2013 - FERC’s Issuance of Authorization to Construct and Operate
3Q 2013 - Commencement of Construction
Early 2017 - Liquefaction Project In-Service Date

The Federal Energy Regulatory Commission is preparing to do an environmental study on Freeport LNG’s $7 billion project.

Well, it was a nice idea. Hopefully the Japanese utilities are hedging their bets with other suppliers where there is less regulatory/political risk.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.