Anticipating Exports from Cameron, Freeport, Corpus Christi, and Elba LNG Projects
The FERC’s announcement on Thursday that it had approved Venture Global’s plans to develop the 10 million metric tons per annum Calcasieu Pass LNG terminal and associated pipelines demonstrated that the Commission had found a resolution to its 2-2 stalemate over approval of LNG export projects. With this announcement, the attention for some turns away from the projects under review and focuses on those under construction. The time it takes to construct LNG terminals is lengthy and many view the process to track progress as complex and opaque.
But as we discuss today, there is a lot of information during the construction phase that can help predict when a project will be ready to begin commercial service. Today, we begin by looking at some key progress milestones (there are many others), and then note the volume of orders issued during the construction period for the four major projects currently under construction alongside the two recently completed projects, Cheniere’s Sabine Pass and Dominion’s Cove Point.
These projects are a huge source of demand on the interstate pipeline system, so if you are a pipeline owner, a producer of gas trying to discern when this demand will impact pricing, a commodities trader with a need to understand the impact on regional and national markets, or an investor in any of the entities involved in these massive construction projects, you will want to understand how we use the available information to track where a project is on the path to commercial operation.
Approvals Needed From Beginning to End
Liquefaction projects have faced delays in the most pivotal approval of all, the issuance of the Certificate of Public Necessity and Convenience. The four-commissioner panel that approved the Calcasieu Pass LNG facility and its affiliated Transcameron Pipeline project was said to be divided on the treatment of greenhouse gas reviews. The commissioners appear to have resolved their dispute by addressing the projects’ CO2 equivalent in the context of the national carbon dioxide equivalent (CO2e) accounting provided by the U.S. Environmental Protection Agency. Whether this will prove to be sufficient for other LNG projects to receive FERC approval and withstand potential litigation tangles is unclear, despite Chairman Chatterjee’s press release, in which he predicted that the Commission’s framework for approving Calcasieu Pass would be used to evaluate the other LNG certificates pending before FERC.
Those accustomed to following pipeline projects are aware that once a project commences construction, there are limited approvals required from FERC until the project is ready to go into service. This is not true for LNG projects, as there are a series of activities that FERC must approve, along with the customary construction progress reports (like those filed for pipeline projects) that provide real insights into how the project is progressing towards commercial service.
A Key First Approval
The starting point for this series of approvals is the order giving the project its notice to proceed with full construction of the final design. Receiving this approval is not a foregone conclusion once a certificate is in hand; in fact, LNG Limited’s Magnolia LNG received its certificate nearly three years ago, and has yet to obtain its notice to proceed. This approval is reflected in our platform as the Start Date of the Construction Phase.
While there is a massive amount of work by the development team and their advisors leading up to this milestone, it is the real launching point of the project. This is the first real signal that ALL the key elements of the project are properly aligned to move ahead, including permitting, financing, and offtake commitments. The authorization will typically include approval of the detailed design of the facility, and the project will begin filing monthly progress reports with FERC.
First Gas to the Processing Facility
While drones and the public can see a mountain of steel being erected at a facility, they don’t have insight into the true progress of the project. The second key milestone approval for a facility reveals a lot about the readiness of the plant. To make LNG, it is essential to process the gas to remove impurities and provide the proper quality of gas to the liquefaction trains which turn it into LNG - a highly purified methane. When a project seeks and receives approval to introduce natural gas to the facility, it means the project is ready to begin testing and commissioning the gas processing units that perform this purification process. This step is also an indicator that the pipeline facilities are operational and is the first clear sign the facility is coming out of the construction phase and entering the testing / commissioning phase toward the full commercial operations phase. Following this approval, there are intermediate steps needing additional approvals, such as the testing of safety and emergency shutdown facilities, introducing gas to the plant and production of the first LNG made to test systems.
First Gas to Storage Tanks and Loading Dock
After the facility has fully commissioned the processing facilities and other key systems, the next step is to make enough LNG to test portions of the facility designed to handle the LNG after it is produced in commercial operations. Introduction of the LNG to storage tanks and the ability to load LNG at the dock are two key operations that have to be brought on line. Success here demonstrates that the plant can technically make LNG and has passed a critical mechanical hurdle, and that the project is on its path forward. Following this step are approvals of the actual commissioning of the storage tanks and the loading dock systems.
Making LNG for Commissioning and Selling on the Spot Market
Getting this approval is a great day for the project sponsor, the construction contractor and the LNG buyers, as it validates the entire physical plant and all systems are complete and ready for the startup phase. This is a very defined and choreographed process toward final completion and identifying the beginning of this process and its timeline provides insight into when commercial LNG can be expected. FERC must next approve the loading of commissioning cargos for their export and sale. But even this isn’t the end -- after successful completion of this step, the contractor will be given a final punch list of items that must be completed before it can claim successful completion of the project and turnover to the operator. In anticipation of that turnover, the operator will seek FERC’s approval to begin commercial operations.
The Final Approval
The final step before a project is complete is the FERC approval to begin commercial service. This final approval in a very long process was received by Sabine Pass on October 5, 2017 for trains one through three - a 52-month journey from start to finish. Cove Point reached this critical milestone on March 5, 2018, a somewhat shorter 40-month path to completion. The chart below shows the number and frequency of these construction period orders for the seven export projects that have started or completed construction.
LNG FERC Orders by Project 2012 - Present
We would like to thank our friend Brad Williams of Spitfire Energy Advisors, an infrastructure development and commercial advisor to users all along the energy value chain, for his insight.
Insights Coming Soon
- Rate case updates
- Discussion on pipeline cost data