SABINE PASS, Lousiana – Frozen bait. Live bait. Minnows.
Here at the junction of Sabine Lake and the Gulf of Mexico, about 100 miles east of Houston, a humble town of avid boaters, dotted with elevated beach houses and tiny shops promising fishing bait, stares across the water at five massive tanks.
Those tanks could store enough energy to fuel for a day both Texas and Louisiana, the two states bordering the marshland and the inlet that make up the Sabine Pass. But the tanks — each of which can hold 3.4 billion cubic feet of natural gas — aren’t even the centerpiece of Cheniere Energy’s $12 billion answer to a U.S. market flooded with natural gas.
The U.S. gas production boom from Texas to New York has made it impossible to make money importing liquefied natural gas, the business that first brought the Houston-based energy company to the Louisiana border. Now, Cheniere is in the vanguard of companies angling to export LNG to international buyers, spending billions at Sabine Pass to turn importing facilities into exporting facilities.
Exporting natural gas
Near a maze of unused offshore jackup rigs and oil derricks in the Sabine Pass, Cheniere is building four LNG trains — facilities designed to cool natural gas into a liquid state — that could process more than 2.5 billion cubic feet of natural gas per day. The trains are already slated to process a higher amount than the 2.2 billion cubic feet per day the DOE and the Federal Energy Regulatory Commission have permitted the company to sell overseas.
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The company is about halfway through building its first two trains: It’s a venture that could transform the region as the company employs construction workers in numbers equivalent to about two-thirds of the population of the surrounding Louisiana parish, said Jason French, a spokesman for Cheniere, who led a boat tour of the LNG facilities Wednesday.
So far, Cheniere has employed 2,000 workers and spent about $5 billion to build its four LNG trains, which are expected to run up $12 billion in expenditures and require 4,500 construction workers.
In two years, Cheniere could be among the first energy companies to send LNG tankers through a widened Panama Canal, a 7,000 mile shortcut to big-spending buyers in Asian markets like China and Japan. U.S. LNG exporters along the Gulf Coast could storm overseas markets by undercutting international sellers who peg their natural gas prices to oil.
The shale effect
When Cheniere finished building $1.6 billion LNG import operations at the Sabine Pass in 2008, the company had envisioned unloading LNG from international sellers into regasification facilities and sending it through a 94-mile pipeline to seven other pipelines and on to an array of U.S. markets. They could vaporize 4.3 billion cubic feet of natural gas per day.
It wasn’t easy working on the marshland: “Just to get trucks onto the site, we had to do significant soil work, mixing cement with the soil to get trucks and heavy equipment on the site,” French said.
That was around the time oil and gas producers broke through shale tight rock formations and changed the U.S. energy landscape forever, pumping gas out of the source rock that had fed the nation’s sandstone reservoirs for millions of years. As the industry deals with a nationwide gas glut and low prices, the Department of Energy has approved four LNG export projects and has about 16 more waiting for a green light.
By the end of 2015, LNG tankers are expected to cruise past the coastal town — and the small docks where local residents tie up their boats with names like “Moonlight” and “Stargazer” — on their way to international buyers who have already bought all the natural gas Cheniere is licensed to sell overseas for the next 20 years.
The company will use propane, ethylene and methane to cool incoming natural gas from pipeline temperatures of about 60 to 70 degrees to negative 260 degrees when it hits the tank and awaits transfer to an LNG tanker.
Cheniere has started new permitting processes with the DOE and FERC in a bid to export higher volumes from its facilities, but high demand for Cheniere’s LNG have pushed the company even further: It is planning to eventually build a fifth and sixth LNG train at the site, which would bring its daily processing capacity to more than 3.5 billion cubic feet of export capacity.
“You don’t just tack on two more trains,” said French, the Cheniere spokesman. The company is planning to go back through DOE and FERC permitting processes to make those a reality, as well, he said.
Next year, Cheniere is planning to spend about $3.8 billion on its four trains, but when costs for its fifth and sixth LNG trains are added, the company expects to spend more than $18 billion at the Sabine Pass, French said.
“That makes it by far the largest industrial project of any kind in the state of the Louisiana and it ranks among the largest in the country,” he said.
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