Federal regulators cleared Cheniere Energy to expand its Sabine Pass liquefied natural gas export terminal but construction will hinge on the company’s ability to secure financial backing for the project.
LNG companies may have a difficult time persuading buyers to commit to new long-term contracts amid a global collapse in crude oil prices, Moody’s Investors Services said in a new report. Although U.S. gas remains inexpensive, international buyers now have access to cheap oil and gas products closer to home, making it less attractive to import from the U.S., Moody’s said.
In addition, the demand in Asia, which triggered the flurry of new LNG products, no longer appears strong enough to soak up all the excess LNG that could flood the market by 2020. Against that backdrop, Moody’s expects many of the 30 proposed LNG export terminals will get canceled.
Despite the skepticism surrounding LNG projects not yet under construction, Cheniere told investors that it hopes to start work on at least part of the expansion project this year, according to company presentations.
Cheniere spokeswoman Faith Parker declined to comment.
The expansion calls for adding two additional LNG production facilities, called trains, to the four-train Sabine Pass terminal, which remains under construction in Louisiana. Adding a fifth and sixth train would boost the terminal’s authorized processing capacity by half, from 2.76 billion cubic feet per day to 4.14 billion cubic feet per day, according to filings with the Federal Energy Regulatory Commission.
The first phase of the terminal is nearing completion, pushing Cheniere closer to becoming the first large-scale plant in decades to ship LNG from the continental United States. The first train is expected to begin producing LNG this year with shipments going out by early next year.
The company has been cleared to ship to countries with which the United States does not have free trade agreements, but it has not received approval from the Department of Energy to export the full amount that would leave its docks if Sabine Pass LNG gets fully expanded.
Cheniere has already signed contracts to sell liquefied gas produced by the first four trains. That $18 billion project was cleared for construction years ago. However, the company has not yet made a final investment decision on trains 5 and 6.
It locked in sales and purchase agreements with Total Gas & Power North America and Centrica to purchase gas produced by train 5 but is still negotiating contracts for the other train, according to federal records and a report by Moody’s Investors Service.
Still, Cheniere told investors that it plans to announce a final investment decision on train 5 by the first half of this year and will make a similar announcement about train 6 by the end of the year.