Energy Transfer Edging Closer to FID for Lake Charles LNG Facility

Energy Transfer LP has signed five LNG export agreements to date for 5.8 million tons per annum (mtpa) of supply ahead of an anticipated final investment decision (FID) this year regarding a large-scale Lake Charles shipping facility that could see initial tankers setting sail as early as 2026.

“Recent events in Europe highlight the importance of LNG from the United States, a country with abundant natural gas supply and strong geopolitical ties to Europe. We are hopeful that our Lake Charles LNG project will be a significant factor in the long-term solution for global energy needs,” Energy Transfer’s Public Relations spokeswoman told Hart Energy on June 10.

Each sale and purchase agreement (SPA) will become fully effective upon the satisfaction of the conditions precedent, including Energy Transfer LNG, an affiliate of Energy Transfer, taking FID, which is anticipated by year-end 2022, Energy Transfer LNG President Tom Mason said June 5 in a company press release.

The Lake Charles LNG facility is the only brownfield project among those proposed on the U.S. Gulf Coast, providing timeline and cost advantages, according to details provided in Energy Transfer’s May 2022 investor presentation. The maximum estimated export capacity could reach up to 16.5 mtpa from three trains or a lower 11 mtpa from two trains.

“They want to FID the full three trains, and they think they will get 90% or so contracted before they take an FID,” Bank of America Merrill Lynch Oilfield Service Analyst Chase Mulvehill told Hart Energy in a phone call from Houston. “There is potential for some majors to step up and sign some offtake… and if a major were to do that, they would actually take on a full train.” 

Energy Transfer is the lone company in the project, after Shell’s departure in 2020. The company continues its search for an equity partner or partners with an aim to sell down up to a 75% interest. It’s doubtful it would FID the project without an equity partner, Mulvehill said.

“If they sign a major that would give them and everybody a lot more confidence that they’ll do 16.45 mtpa and the full three trains,” he said, adding that Energy Transfer wasn’t interested in a phased construction plan and would prefer to do three trains all at once.

At an estimated cost of $550 per ton, according to Bank of America and Merrill Lynch data, the potential cost for the Lake Charles LNG export facility could be between $6 billion-$9 billion.

Dallas-based Energy Transfer’s move into the LNG export arena comes after the sale of its Canadian assets to further deleverage its balance sheet and redeploy capital within its massive U.S. footprint. 

“High [U.S. LNG] exports are being supported by high international LNG prices, as well as by additional export capacity created by a new U.S. LNG export facility, Calcasieu Pass LNG, which continues to ramp up exports,” the U.S. Energy Information Administration announced June 7 in its Short-Term Energy Outlook.

“If they sign a major that would give them and everybody a lot more confidence that they’ll do 16.45 mtpa and the full three trains.”—Chase Mulvehill, Oilfield Service Analyst, Bank of America Merrill Lynch

Expanding Export Deals

Energy Transfer has signed five LNG SPAs between March and June for a total 5.8 mtpa of LNG supply. Under all the agreements, the shipments will be free-on-board with a purchase price indexed to the Henry Hub benchmark plus a fixed liquefaction charge. The first deliveries are expected as soon as 2026.

Most recently, China Gas Hongda Energy Trading Co. Ltd, a subsidiary of China Gas Holdings Ltd., signed a SPA to receive 0.7 mtpa. The SPA is for 25 years and is China Gas’ first long-term contract.

It “strengthens our existing portfolio for the import of LNG and will further enable China Gas to reliably and securely meet our natural gas customers’ needs,'' China Gas Hongda General Manager Yalong Qi said June 5 in a press release. “It is also an important step along the path to realizing China’s carbon peaking and carbon neutrality goals,” he added.

In May, Energy Transfer signed two SPAs.

The first SPA involved Gunvor Singapore Pte Ltd., which signed on for 2 mtpa. The SPA is for 20 years and “a significant step in executing Gunvor’s overall strategy of uncovering and securing low-cost resources and implementing competitive and reliable deliveries to our LNG buyers,” Gunvor Co-Head of LNG Trading Kalpesh Patel said May 2 in a press release. The second SPA was inked on May 3 and involved SK Gas Trading LLC, which signed on for 0.4 mtpa. SK Gas, which is Energy Transfer’s first Korean offtake customer, committed to an 18-year SPA.

In March, Energy Transfer also signed two SPAs, which represent the company’s initial deals. ENN Natural Gas and ENN Energy Holdings Limited announced that ENN NG and ENN Energy signed on for 1.8 mtpa and 0.9 mtpa, respectively. Both SPAs are for 20 years.

“The signing of these long-term SPAs will further enrich ENN’s LNG resources, expand resource supply channels and improve ENN’s natural gas supply capacity to meet the rapidly growing natural gas demand in the domestic market,” ENN NG President and Vice Chairman of the Board of Directors of ENN Energy Holdings Zheng Hongtao said Mar. 29 in a press release.

Lake Charles LNG

Energy Transfer is amongst the largest and most diversified midstream energy companies in North America. The company has a strategic footprint in all of the major U.S. production basins and owns and operates approximately 120,000 miles of pipelines and associated energy infrastructure across 41 states transporting approximately 30% of the U.S.’ crude oil and natural gas.

Lake Charles LNG, a wholly-owned Energy Transfer subsidiary, owns an LNG import terminal and regasification facility on Louisiana’s Gulf Coast near Lake Charles, La. The terminal has above-ground storage capacity of approximately 9 Bcf and the regasification facility has a send-out capacity of 1.8 Bcf/d. 

The Lake Charles LNG facility will be built on the existing brownfield regasification facility. The site spans 152-acres and will capitalize on four existing LNG storage tanks with capacity of 425,000 m3, two deep water berths that can accommodate ships up to 215,000 m3 capacity and other LNG infrastructure.

The facility will also benefit from its direct connection to Energy Transfer’s existing Trunkline pipeline system that connects to multiple intrastate and interstate pipelines, the company said in its annual report, adding that the pipelines allow access to multiple natural gas producing basins, including the Haynesville, the Permian Basin and the Marcellus Shale.

On May 6, the Federal Energy Regulatory Commission granted Lake Charles LNG’s and Trunkline’s extension of time request to allow for completion of construction and modifications through Dec. 16, 2028. The project as currently designed is fully permitted by federal, state and local authorities and has all necessary export licenses, according to Energy Transfer.