Vietnam's Delta Offshore Energy backs away from renewing MOU with Magnolia LNG

Singapore — Vietnam-based Delta Offshore Energy, which is building an LNG-to-power project in the country's south, has backed away from renewing a recently expired preliminary agreement for LNG supply with US-based Magnolia LNG.

The move is likely to come as a blow to Magnolia LNG as US project developers are finding it increasingly difficult to sign up long-term LNG customers in Asia, which has impacted the ability of the projects to move forward in a low price environment.

"Our MOU with Magnolia LNG expired and we do not intend to extend it at this stage," Delta Offshore Energy's managing director for origination and stakeholder relations Ian Nguyen said Aug. 10. "We have spoken with most of the top LNG suppliers globally with US supply/offtake and also the key US suppliers," he added.

"There are very few projects globally that will be procuring LNG anytime soon, especially with a attractive long-term offtake profile [like that of] Bac Lieu. Thus, we expect significant interest by suppliers to provide competitive supply," Nguyen said.

Australia's LNG Ltd, which was building the Louisiana-based Magnolia LNG terminal, signed a non-binding memorandum of understanding with Delta Offshore Energy in September 2019 to supply 2 million mt/year of LNG from Magnolia to fuel the proposed 3,200 MW combined-cycle power plant to be built in Vietnam.

LNG Ltd. secured the necessary federal permits in 2016 to build Magnolia LNG but could not sign up buyers for the full volume of 8 million mt/year of LNG that it planned to produce. As the coronavirus hit an already weak global gas market, the company found itself burning through cash reserves and on the verge of insolvency.

After previous buyout efforts fell through, private US investment firm Glenfarne Group acquired Magnolia LNG in June. Glenfarne said Magnolia LNG is permitted to receive natural gas through the existing Kinder Morgan Louisiana Pipeline. The acquisition increased Glenfarne's LNG export capacity to 12 million mt/year, 4 million mt/year of it from the late stage Texas LNG Brownsville project.

Meanwhile, Delta Offshore Energy said it is in the process of designing a request for proposal or RFP with the help of Wood Mackenzie and its legal advisers Hogan Lovells, Gide and ACSV. Howe Robinson has been hired to advise on transportation routes to supply LNG on a free-on-board (FOB) basis from the US Gulf Coast and sellers geographically closer in Asia and the Middle East.

'RECORD PACE'

According to Nguyen, Delta Offshore Energy is carrying out work on the project at a "record pace" and expects to finalize all negotiations with the local government by year end.

"We are running all technical, legal, commercial and financial work streams in parallel rather than the typically drawn-out sequenced development process. The project has funding fully secured already, hence our rapid pace," he said.

The feasibility study and the environmental impact assessment for the project are expected to be completed in September, Nguyen added.

Vietnam has been ramping up efforts to import LNG due to declining domestic gas production and could put in place 10 million-15 million mt/year of LNG regasification capacity in the next decade, with the first operational as early as 2021.

While state-run PetroVietnam is backing the bulk of the country's LNG-to-power projects, many like Delta Offshore are being proposed by private developers.

Vietnam's national power plan has a target to generate 1.5 GW of LNG-fired power by 2026, and the country is drafting a new national power development plan for 2021-2030, with a vision to 2045, that is expected to further spur development in renewable energy and LNG-based power.