Energy Transfer evaluates Lake Charles LNG construction contractor bids

Houston — Energy Transfer is evaluating bids from contractors that have offered to build its proposed Lake Charles LNG export facility, according to a regulatory filing.

The Louisiana project continues to be active and viable despite Shell's exit in March as an equity partner, the company said in a July 14 monthly status report to the Federal Energy Regulatory Commission.

Global price weakness and a slowdown in new long-term contracting – exacerbated by the coronavirus pandemic – have forced numerous developers of US liquefaction terminals proposed to start up around the middle of the decade to delay final investment decisions or stop providing targets for making decisions. Shell cited the market challenges when it pulled out of the export project at Lake Charles LNG, leaving Energy Transfer to proceed on its own.

"The project remains an active project fully-supported by Energy Transfer," the company said in its filing.

Lake Charles LNG has received commercial bids from engineering, procurement and construction contractors in response to a tender issued in December 2019. In the filing, Energy Transfer said the bids are being evaluated, though it did not disclose who the bidders are or when it would make its choice.

The project to add liquefaction facilities at the site of a regasification terminal has had FERC permit authorization to move forward since 2015. To date, however, it has not disclosed any firm long-term offtake contracts tied to its proposed supply.

Such agreements would be critical to being able to secure financing for the billions of dollars in startup costs, especially for an operator that does not have an existing global portfolio of LNG customers like Shell does that it could tap to support its liquefaction plans.

After the Shell announcement, Energy Transfer said it was evaluating alternatives at Lake Charles LNG, including bringing in one or more equity partners and scaling back the project to two trains from three and reducing planned capacity to 11 million mt/year from 16.45 million mt/year.

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, through its acquisition of BG, 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. The facility hasn't imported any LNG since March 2012, according to US Department of Energy records.

In its status report to FERC, Energy Transfer said that Lake Charles LNG and BG LNG are negotiating an amended regasification services agreement to replace the existing one. In Decmeber, FERC granted Energy Transfer a five-year extension until late 2025 to complete construction of the export facility. For the current deadline to be met, FID and the start of construction would likely need to occur by the end of next year.