Kinder Morgan Buys Shell's Stake In Georgia LNG Project

Kinder Morgan Inc. (KMI) said July 15 it would buy the remaining interest it doesn't already own in Elba Liquefaction Co. LLC, the proposed project at the existing Elba Island LNG Terminal near Savannah, Ga., from Royal Dutch Shell Plc (RDS.A).

The purchase of the 49% stake is expected to cost Kinder Morgan about $630 million, bringing its total investment in the project to about $2.1 billion. Shell will retain 100% of the project's liquefaction capacity.

The reasons for the sale weren't disclosed. But in April, Shell said it was buying BG Group Plc, which has a global portfolio of LNG, for about $70 billion. Shell aims to divest billions in assets and the proximity of BG’s and Shell’s LNG projects in southern U.S. may have prompted the Shell pull out.

In April, Shell said the BG portfolio would bring new LNG options to the company, including BG’s LNG export plans in Lake Charles, La. Shell executives noted that “we have similar, but smaller plans at Elba.”

Along with the doubling-up of facilities, Shell has set a goal of divesting $30 billion in assets from 2016-18. Shell said it wants to average about $10 billion a year in sales.

Shell executives said in April they might also seek further divestments in 2015, “although proceeds are likely to be small, due to weak market conditions for divestments currently.”

Permitting continues for the proposed Elba Liquefaction Project, which consists of 10 small-scale liquefaction units to be purchased from Shell. They will be integrated with the existing Elba Island facility and enable rapid construction compared to traditional large-scale plants.

Under full development, the Elba Liquefaction Project is expected to have a total capacity of about 2.5 million tonnes per year of LNG for export, which is equivalent to about 350,000 thousand cubic feet per day of natural gas.

In 2012, the project received authorization from the Department of Energy to export to Free Trade Agreement (FTA) countries. An application to export to non-FTA countries is pending.

The project was first announced in January 2013 by Southern Liquefaction Co. LLC, a Delaware limited liability company, and a unit of Kinder Morgan, and Shell to add liquefaction and export capability to Southern LNG Co. LLC’s existing LNG regasification terminal at Elba Island in Chatham County, Ga.

The next step in the regulatory approval process is for the Federal Energy Regulatory Commission (FERC) to issue a draft environmental assessment. Subject to regulatory approvals, construction could begin in fourth quarter of 2015, with initial production expected to occur in late 2017.

Emily Moser can be reached at emoser@hartenergy.com, and Darren Barbee can be reached at dbarbee@hartenergy.com.