First U.S. Shale Gas Exports May Miss Late 2015 Target

  • LNG production at Sabine Pass on track to start at end of 4Q
  • `Some operational steps to be taken' before Cheniere export

The first tanker of shale gas to be exported from a terminal in the continental U.S. may not hit the water until next year, missing a late 2015 target set by project developer Cheniere Energy Inc. 

The Sabine Pass terminal in Louisiana, which will have six production plants, or trains, will start chilling natural gas at the end of this quarter, Cheniere Chief Executive Officer Charif Souki Thursday in an interview at the 20th International Gas & Electricity Summit in Paris. The plant will have to complete certain operational steps such as cooling the tanks before the first ship can be loaded, he said.

“Whether we actually export the first cargo this year or next year, I don’t know yet,” Souki said. “The first LNG you produce, you have to see at what pace you produce it, if there are any issues or not; and you have to accumulate enough LNG in the tanks to make sure you cool down everything. We have five tanks.”

Cheniere is on the front line of U.S. plans to export LNG as shale formations boost gas production. Sabine Pass and other export terminals worldwide are expanding spot trade of the fuel at a time when global prices are slumping amid surging supply and U.K. natural gas futures are at the lowest seasonal level since 2009.

Cheniere has signed agreements to supply LNG from Sabine Pass with companies including BG Group Plc, Gas Natural SDG SA, Korea Gas Corp. and GAIL India Ltd. U.K. gas prices will slide 19 percent this year to average $6.80 per million British thermal units, while prices in Japan will drop to $7.50 per million Btu from $14 last year, according to Energy Aspects Ltd. Gas for November delivery on the New York Mercantile Exchange fell 6.5 cents to settle Thursday at $2.453 per million Btu.

“We don’t have any particular need to export immediately,” Souki said. “There are some operational steps to be taken.”

‘Natural Customer’

Cheniere sees Europe as a “natural customer” for U.S. LNG and is ready to supply as much fuel to the European market as it’s willing to absorb, Souki said at the conference. In the current market, it is more profitable to sell LNG to Europe than to Asia, he said.

In Europe, U.S. gas will compete with Russia, the region’s biggest external supplier, and Algeria, Total SA CEO Patrick Pouyanne said Thursday in Paris.

“Europe will receive a lot of gas from a lot of places, especially when there will be LNG from the U.S.,” Pouyanne said. “There will be competition between American gas, Russian gas, Algerian gas, Middle Eastern gas and all that should be favorable to the European consumer.”

$30 Billion

Cheniere’s debt at LNG projects is estimated at $20 billion to $24 billion, Souki said. Sabine Pass will account for $11 billion and the Corpus Christi project for $8 billion to $9 billion, he said.

“But it is all at the project level, it is all supported by the cash flows at the project level, and the coverage is more than 200 percent,” Souki said.

Jim Chanos, founder and president of New York-based hedge fund Kynikos Associates LP, said October 12 that Cheniere’s plans to export LNG from the U.S. will leave the company burdened with over $30 billion in debt.

“That’s nonsense,” Souki said when asked about Chanos’s estimate. “I am not sure what he is talking about.”

Separately, Souki said Cheniere’s marketing arm in London hired Andrew Walker, a former vice president for global LNG at BG Group Plc who spent more than 20 years at the Reading, England-based company.

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