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Freeport LNG poised to export 1st cargo in July as world looks to US


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Freeport LNG poised to export 1st cargo in July as world looks to US

Freeport LNG Development LP should be ready to ship its first export cargo in July, at the beginning of the 2019 hurricane season and nearly two years after flooding from Hurricane Harvey helped cause a delay for the Texas facility.

Freeport LNG CEO Michael Smith said in a March 11 interview on the sidelines of the CERAWeek by IHS Markit conference that his company expects to begin flowing feedgas to the facility in April or May, with first LNG ready to load in July.

Approximately five to 10 commissioning cargoes will be shipped before Freeport LNG begins commercial deliveries this September, Smith said at the Houston conference. The commercial timing, announced last year, amounted to a nine-month delay from a previous target. That delay was attributed in part to flooding at an equipment yard at the terminal's Texas site following Hurricane Harvey in August 2017, and to contractor execution delays. The Atlantic hurricane season runs from June 1 to Nov. 30.

"We're cautiously optimistic that they're going to meet the current schedule, based on the progress they've made to date," Smith said. "There's still a lot to do. And I would not ever say there isn't a risk that it be delayed."

Freeport's place in the market

With the number of domestic liquefaction terminals in operation set to double this year, the U.S. is expected to become a much bigger player in the global supply market for the chilled fuel, which is increasingly used to diversify the energy mix in Europe, Asia and Latin America. That anticipation has put added pressure on under-construction projects to begin exports as soon as possible, especially with a second wave of developers angling for market share and eager to break ground on their own facilities.

While two other terminals preparing for startup have had their share of delays, Freeport LNG has been particularly challenged, with weather and contractor issues among the factors. "I don't know how more urgent you can be," Smith said. "We started the export planning and design process in 2010. I don't know how many people can do business for nine years and not have one piece of its product ever be manufactured to not be pretty anxious to see the fruits of your labor."

The International Energy Agency said in a March 11 outlook that a second round of the U.S. shale revolution is coming, with the U.S. projected to account for some 75% of the expansion in global LNG trade over the next five years. The result, the agency said, will be a shake-up in international trade flows, with implications for energy markets and geopolitics. Trade tensions between the U.S. and China, which the countries are currently trying to resolve, are impacting developers' decision-making process.

"Hopefully, they'll have an announcement in the not-too-distant future that both China and the United States will be proud to have behind us," Energy Secretary Rick Perry told reporters during a briefing at the conference.

China's activities

China imposed a 10% tariff on imports of U.S. LNG starting in September 2018, in retaliation for U.S. tariffs on Chinese goods. LNG spot cargoes have continued to flow to China, although in a smaller volume than a year ago. The bigger impact has been on efforts by U.S. developers of new terminals to secure sufficient long-term offtake contracts and equity partners to finance construction.

Tellurian Inc.'s Driftwood LNG export project in Louisiana is an example. President and CEO Meg Gentle said in an interview at the conference that there has not been a lot of commercial activity on a long-term basis with Chinese counterparties at this time, but Tellurian continues to court buyers from that country.

Elsewhere, Cheniere Energy Inc., which owns two of the three major U.S. LNG export terminals in operation, is said to be in talks with China's state-run China Petroleum & Chemical Corp., or Sinopec, about a long-term supply agreement, with the parties awaiting further instructions from government authorities about a trade resolution. The trade negotiations could come to a head within the next few weeks, about the time in early April when U.S. developers are scheduled to pitch their services at a global LNG conference in Shanghai.

This year, much of the market's attention is on startup plans at Freeport LNG, Sempra Energy's Cameron LNG in Louisiana and Kinder Morgan Inc.'s Elba liquefaction facility in Georgia.

Last November, Japan's Toshiba Corp. said it was bailing on its offtake plans at Freeport LNG, agreeing to pay about $800 million to China's ENN Group Co. Ltd. to take over its U.S. LNG business, which includes long-term obligations to buy liquefied gas from the Texas export terminal. The electronics maker said it wanted to focus on its core businesses and distance itself from volatile energy markets. Other customers for the facility include Japanese firms Osaka Gas Co. Ltd., JERA Co. Inc. and Sumitomo Corp., and British energy giant BP PLC.

Harry Weber and Jason Lord are reporters at S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.