Uncertainty over Shell's role in the Lake Charles LNG export terminal that has been proposed with Energy Transfer has been resolved, with a new framework that defines who will be in charge of construction and who will operate the project, the two partners said Monday in a statement.
Differences with partner Shell about costs and other issues were cited as a sticking point by an Energy Transfer executive during a February investor conference call.
With an agreement now reached on an outline for moving forward, the partners are preparing to solicit bids from potential construction contractors, the developers said in a joint statement. Energy Transfer most recently had been targeting a final investment decision during the first half of 2020.
"The decision to make an affirmative FID to proceed with construction of the project will be subject to both companies' assessment of the outcome of the EPC bidding process, overall project competitiveness and global LNG market conditions at the time of such decision," the statement said.
The project to add liquefaction facilities at the site of a regasification terminal has had US regulatory permit approval to move forward since 2015. Difficulty signing sufficient long-term offtake agreements to finance the billions of dollars of startup costs, combined with the more recent trade dispute between the US and major LNG importer China, has hampered the project, as has questions about the relationship between Shell and Energy Transfer. Shell is also backing the LNG Canada export project in British Columbia that was sanctioned in October 2018.
The Louisiana project, with approved capacity of more than 2 Bcf/d, would use existing dock and storage facilities at the site and would include the construction of three liquefaction trains. Energy Transfer's website says the project is targeting a late 2024 or early 2025 startup. To date, no firm offtake agreements to support the project have been publicly disclosed.
The facility originated as an LNG import terminal when market expectations were for a US shortage of the power plant and home heating fuel. After the shale revolution unlocked vast reserves of US gas supplies, Energy Transfer and Shell pursued a plan to retrofit the facility to export LNG instead.
Shell is the sole customer for the existing regasification facility at the Lake Charles site, and it is obligated to pay reservation fees for the capacity regardless of whether it actually utilizes it, under an agreement that terminates in 2030, according to Energy Transfer's website. The facility hasn't imported any LNG since March 2012, according to US Department of Energy records.
PROJECT OUTLOOK
During the February investor call, Thomas Mason, an Energy Transfer executive vice president who oversees the LNG project, said the company had made progress resolving some differences with Shell on advancing the export project. He said at the time that the two sides were still discussing issues on the engineering side, with Energy Transfer pushing for costs low enough to be able to offer LNG to customers at competitive prices.
In Monday's statement, the two companies said they have started actively engaging with LNG engineering, procurement and contracting companies with a plan to issue an invitation to tender in the weeks ahead.
The new framework calls for Shell to act as the project lead prior to the companies reaching an FID, and if sanctioned, as construction manager and operator of the facility. Energy Transfer will act as site manager and project coordinator prior to FID. The Lake Charles project is a 50:50 venture between Energy Transfer and Shell.
