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Cheniere expects Midship service to start in April 2020, raises cost estimates

Cheniere Energy Inc.'s Midship Pipeline is looking to begin partial gas transportation service as soon as April 2020, the company told federal regulators as it asked to raise recourse rates in response to increased construction costs.

That schedule puts the start well beyond October, when the developer earlier this year had indicated it planned to begin interim service on the 200-mile natural gas pipeline.

Once completed, the 1.44 Bcf/d pipeline will help move western Oklahoma gas closer to U.S. Gulf Coast markets, but an impact on Mid-continent gas prices may be blunted by downstream pipeline constraints, according to S&P Global Platts Analytics. The pipeline will run from the Anadarko Basin in Oklahoma to interstate pipeline connections near Bennington, assisting gas flows to Gulf Coast and Southeast markets.

In seeking to raise its recourse rates, the developer pointed to heavy rains and other unexpected complications, such as a high number of foreign line crossings that were discovered, affecting the construction plans and project costs. In early July, Cheniere also received a temporary stop-work order from the Federal Energy Regulatory Commission related to problems with erosion controls, sediment, loss of topsoil and stabilization, which tied back to the springtime rains.

Cheniere spokesperson Jenna Palfrey said construction of the pipeline is now "nearly complete with the majority of remaining work relating to restoration and commissioning activities."

"Unusually high levels of rainfall — which caused historic flooding in areas surrounding the Midship route — created unavoidable delays in our schedule," Palfrey said, noting that the interim service capacity is 1.1 Bcf/d.

The abbreviated application Midship filed Dec. 20 seeks updated cost-based recourse rates based on revised costs estimates of $1.39 billion for constructing facilities needed for interim service and $1.49 billion for those needed for full transportation service. Current firm shippers have negotiated rates for firm service and are therefore not affected by increases in recourse rates, the application said.

The weather in April through June required Midship to spend over $100 million on rain-related items, directly contributing to the requested rate increase, the filing said.

Midship also cited unexpected contingencies such as finding three times the number of foreign line crossings identified before construction, requiring a different-than-expected construction method and lifting costs over $130 million. Cheniere also cited contractor-related expenses and changes in scope of the project.

Pressure on the project to address erosion and stabilization concerns has been stepped up through "construction status reports" filed in the FERC docket by Central Land Consulting, a private company acting on behalf of landowners. Supplementing the official reports, those filings seek to document damage and what the consultant contends is "non-compliant activity" on the properties. A November 26 filing, for instance, included photos the consultant said documented unstable creek conditions, trespassing outside approved boundaries, intentional dewatering and mixing topsoil and subsoil. The consultant accused project environmental inspectors and compliance monitors of a failure to inspect and report violations, and it pressed FERC to enforce requirements.

Maya Weber is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.