Excelerate Energy puts Lavaca Bay LNG on hold

HOUSTON — Excelerate Energy has put plans to develop a floating liquefied natural gas terminal near Port Lavaca on hold.

The company, based in The Woodlands, announced in February that it had applied to the Federal Energy Regulatory Commission for authorization to build and operate an LNG export facility in Lavaca Bay, about 30 miles southeast of Victoria, Texas.

That project is now on hiatus, and the company “has elected to suspend all activities” surrounding it as Excelerate evaluates the economics of the undertaking, company spokeswoman Denise Madera in an email Wednesday.

“Due to the recent global economic conditions, the company has determined that, at this time, this project no longer meets the financial criteria necessary in order for us to move forward with the capital investment,” Madera wrote. “As a financially prudent company, we must commit our efforts and capital on opportunities that will bring the most value to our company.”

The company is now focused on developing floating LNG facilities outside of the U.S., she said.

On Dec. 23, attorneys working for Excelerate asked FERC to put the company’s earlier application into abeyance until April 1, when it will provide FERC with more information about the status of the project — essentially asking for a pause in the regulatory process as it reevaluates the project itself.

“Recent global economic conditions—including, among other things, a steep
decrease in the price of oil—have created uncertainty regarding the economics of the project,” wrote Thomas Holmberg, an attorney with Baker Botts LLP, in the filing.

The economics of LNG projects become more challenging as the price of crude oil declines.

Outside the U.S., the price of natural gas is largely tied to the price of crude oil. When crude’s price falls, so to does the price of natural gas.

The economics of U.S. LNG export companies are based on their ability to take advantage of the price spread between international natural gas and U.S.-sourced natural gas. That spread narrows as natural gas becomes cheaper abroad.

Meanwhile, low crude oil prices can also reduce some international demand for natural gas, since it makes crude oil a more affordable alternative for some uses.

Still, the Lavaca project faced other challenges as well — namely competition from a slew of other U.S. companies trying to break into the same LNG export market, many of which had a head start in the regulatory queue.

Excelerate officials had said the project would have been the first floating LNG export facility in the U.S. They pitched the project as a more cost-effective alternative to land-based terminals.

Company officials said earlier this year they hoped to make a final investment decision on the project by early 2015 and expected the project to come online in fourth quarter of 2018.

Company leaders had said it would cost $2.5 billion to build the initial phase of the project.

Excelerate is led by Rob Bryngelson, a founder of the company, who previously served as a managing director of El Paso Corp.’s global LNG group.