LNG Exports - Where Is All That Gas Coming From?
In Second Wave LNG Schedules Trumpeted by FERC - Smooth Sailing Ahead? we discussed the status of the various LNG export terminals that are planned around the country, with a focus on those projects that may be moving ahead of the pack. While the regulatory hurdles for those projects remain significant, today we look at key risks associated with the pipeline projects that are designed to provide the feed gas for the LNG facilities.
While the risks for these projects are different than a usual pipeline project, not all projects have the same risk profile. As we've discussed previously, the contractual commitments for liquefaction services can drag out timelines, and may even mean certain projects will not go forward, even with a FERC certificate in hand. Therefore, any potential customer of the LNG facility will want to understand two key risks for the pipeline project: the extent of construction for each of the related pipeline projects, and the variety of gas sources feeding the pipeline. Because this information is critical for potential LNG customers, it is also critical for those financing these projects, as well as stakeholders trying to understand how the projects will impact flows and pricing on the proposed sources of gas.
Infrastructure Needed to Supply Gas to LNG Facilities
The risk profile for these pipeline projects is different than for the usual pipeline project for two main reasons. First, the largest, and often only, customer of these pipelines is the affiliated owner of the LNG facility. Second, risks of permitting delays are lower for pipeline projects designed to support LNG facilities because the time period between FERC approval and the proposed in-service date is usually longer than the pipeline project needs. This is because the in-service date for the pipeline is tied to the construction of the LNG facility, which has a much longer construction period than the pipeline. Thus, there is usually plenty of leeway already built into the pipeline's construction schedule.
For instance, for the Louisiana Connector project, which plans to connect to the Port Arthur LNG project, the applicant, Sempra, asked FERC to approve the project by August 31, 2018 so that the pipeline could be in-service by the third quarter of 2022, over four years later. Clearly, the applicant doesn't expect to spend four years permitting and constructing the 131 miles of pipeline needed for that project, but rather intends to place the pipeline into service to match the in-service date of the LNG facility. In the chart below, we set forth three key characteristics for assessing the size of the pipeline project -- cost, capacity and inchmiles, which is an aid for assessing the impact of the project, which can increase the risk of that project drawing opposition.
LNG Pipeline Projects: Key Characteristics to Assess Risk
The extent of the pipeline facilities being built can increase the risk for these projects in a unique way. Because the LNG facility can take so much longer to build than the related pipeline, the proponent may not pursue the pipeline permits, other than the FERC certificate, until the LNG facility is under construction. If this is the process used and the pipeline runs into a permitting issue, the delay in the pipeline's permitting can cause a delay in the in-service date for the LNG facility. Therefore, knowing the key characteristics of the facilities needed is important for understanding this possible project risk.
Where Is All That Gas Coming From?
As seen in the chart above, the capacity of these feeder pipelines ranges from slightly more than 0.5 Bcf/day to almost 4 Bcf/day. While the developer of the LNG facility will often subscribe to the total capacity on the companion pipeline facility, the pipeline is typically only a connector to the broader interstate/intrastate pipeline system and not a connection to an independent supply of gas. (Note: Tellurian's business model seeks to offer a solution that employs a more integrated approach that connects back to the supply source.) If the party contracting with the LNG facility is responsible for getting the gas to the companion pipeline, then two key risk factors need to be considered: (1) understanding the pipelines to which the feeder pipeline is connected; and (2) assessing whether those pipelines have the capacity needed to meet this new demand of 2 to 4 Bcf/day.
A number of these LNG pipeline projects have connections to the same interstate pipeline systems. Set forth below is the total feeder pipeline capacity that will be connected to various incumbent pipelines if all of this new LNG capacity is built. Once these new LNG facilities begin construction, the next wave to watch will be the likely expansion of these traditional pipelines that interconnect with the feeder pipelines.
Insights Coming Soon
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