Cheniere Energy May Build Natural-Gas Export Plant at Sabine Pass Terminal

Cheniere Energy Inc. said it may build the first plant in the lower 48 U.S. states to export liquefied natural gas, starting as early as 2015.

The project would add capacity at its Sabine Pass import terminal to liquefy and export gas. The first phase would include two liquefaction trains with capacity of approximately 1 billion cubic feet a day, the Houston-based company said in a statement late yesterday. The terminal can accommodate four trains, the company said.

Supplies of domestic natural gas rose to the highest level in at least 30 years in March amid increased production from shale wells, according to the Energy Department, making LNG imports less attractive and forcing LNG terminal owners to change strategy.

“The plan is a sign that major LNG importers who are looking at the market and realizing it’s not really sustainable are starting to consider the potential of exports,” said David Pursell, a managing director at the investment bank Tudor Pickering Holt & Co. LLC in Houston.

Cheniere shares surged 32 cents, or 11 percent, to $3.46 in New York Stock Exchange composite trading.

Adding liquefaction capabilities at the Sabine Pass terminal, located in Cameron Parish, Louisiana, will turn it into a bi-directional facility capable of both exporting and importing LNG, Cheniere said in its statement.

Regulatory Approval

The project is subject to Cheniere obtaining federal and state regulatory approvals and signing satisfactory construction contracts and long-term customer contracts, the company said.

“The U.S. is experiencing an increase in natural gas production, primarily driven by unconventional gas plays, while natural gas demand in the U.S. continues to lag behind market projections,” said Cheniere Chief Executive Officer Charif Souki in the statement.

U.S. LNG cargoes exported from the terminal would likely go to Europe, and possibly Asia, he said in a conference call.

The company has already been re-exporting imported LNG cargoes at the terminal. Citigroup Energy Inc. bought an LNG cargo from Cheniere at Sabine Pass in February for re-export to Spain, according to the Energy Department.

The Energy Department on June 1 granted Cheniere authorization to re-export LNG equivalent to 500 billion cubic feet of natural gas over two years.

Cost is a major factor in building a liquefaction facility and Cheniere could benefit from already having the ability to re-export LNG, said Pursell. “Effectively you’re just building a refrigerator in there. The ancillary infrastructure is already built.”

Biggest Terminal

The terminal, the biggest liquefied natural gas importing facility in the U.S., can regasify LNG and send out 4 billion cubic feet a day of natural gas to pipelines. It also has LNG storage capacity of 16.9 billion cubic feet, according to Cheniere.

Apache Corp., a Houston-based natural-gas producer with a 51 percent stake in the Kitimat LNG project in British Columbia, plans to decide in the second quarter of 2011 whether to build an export terminal.

The Kitimat terminal, 1,180 km (733 miles) northwest of Vancouver, British Columbia, expects to ship gas tapped from fields in the province that has been selling at a discount to the benchmark price in the U.S. and Canada because of its distance from major markets.

The cost of the project is estimated at C$3 billion ($2.9 billion), Bill Mintz, an Apache spokesman, said in a phone interview.

Cheniere’s cost to build the liquefaction capability is not public yet, Souki said. “It is less than Kitimat” because it is not necessary to build infrastructure such as a pipeline and storage facilities that are necessary in a greenfield project.

To contact the reporters on this story: Moming Zhou in New York at mzhou29@bloomberg.net; Paul Burkhardt in New York at pburkhardt@bloomberg.net.

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