DOE approves Cheniere to export LNG from Sabine Pass

By Phaedra Friend Troy

The US Department of Energy’s Office of Fossil Energy has approved Cheniere Energy’s (NYSE:LNG) request to convert its Sabine Pass LNG receiving and gasification terminal into an LNG liquefaction and export terminal.

In August, Cheniere filed to convert the Sabine Pass terminal into an LNG export terminal for a 20-year period. The DOE approved the application on Sept. 7. 

Currently under review with the Federal Energy Regulatory Commission (FERC), the proposal is to convert the Sabine Pass LNG terminal to export up to 16 million metric tons per year of domestically produced LNG to multiple countries under multiple contracts.

Shale Gas Could Make the US a Major Exporter

Spurred by increase in natural gas production in the US, the export facility would be the first in the country in 40 years. Shale gas production has skyrocketed across the continental US, and LNG export would help relieve the influx of gas into the domestic market.

"We believe current market fundamentals have created an opportunity for the US to offer natural gas to global markets at competitive prices,” said Charif Souki, chairman and CEO of Cheniere. “The US is experiencing an increase in natural gas production, primarily driven by unconventional gas plays, while natural gas demand in the US continues to lag behind market projections. Due to the depth of the markets in South Louisiana with an abundance of supply and existing pipeline infrastructure, we can provide an additional outlet for US natural gas production while offering a low cost source of supply for global buyers seeking alternatives to oil-indexed contracts."

Sabine Pass LNG Export Conversion

Originally constructed as an LNG import terminal, the Sabine Pass LNG terminal was finished in 2008. Located on the Sabine Pass River on the border between Texas and Louisiana, the Sabine Pass terminal is the largest receiving terminal by regasification capacity in the world.

By adding the liquefaction capabilities to the Sabine Pass terminal, the facility would become bi-directional.

“We have begun pursuing contractual arrangements related to the project and have received favorable preliminary indications of market interest from both potential natural gas buyers interested in capacity and US natural gas producers interested in committing supply to the project,” Souki added. “Furthermore, we believe the opening of new markets for US natural gas would reduce price volatility, increase stability in markets, and support continued energy investments in the US."

The conversion is expected to take place in two phases. The first would build two LNG trains each capable of processing 3.5 million tons per year with a combined liquefaction capacity of about 1 billion cubic feet per day.

The second phase of development would add another two LNG trains taking capacity to 2 billion cubic feet per day. This phase would be considered in the future based on customer interest.

Bechtel Oil, Gas and Chemicals has been contracted to design and construct the liquefaction facilities, using the ConocoPhillips Optimized Cascade liquefaction technology. With an estimated start-up date of 2015, construction is waiting on required regulatory approvals.

Currently, there are three Gulf Coast LNG import terminals seeking permission to export. Others include Freeport LNG in Texas and Sempra LNG in Louisiana. The Freeport LNG project is similar to the Sabine Pass conversion, but the Sempra LNG project is going to be a re-export project only.

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