? Magnolia LNG is in "serious discussions" with Chinese buyer.
? US-China trade deal increased Chinese interest in Magnolia LNG.
? "You have to expect" companies like GAIL (India) Ltd. will renegotiate LNG contracts.
LNG Ltd. CEO Greg Vesey said the issue for U.S. LNG export developers is convincing buyers to sign long-term contracts. Source: LNG Ltd. |
LNG Ltd.'s Magnolia LNG project in Louisiana is one of four proposed U.S. export projects that are fully permitted but do not yet have a final investment decision. As the project seeks to move forward in an oversupplied market, the Australian company's biggest challenge is convincing buyers to pull the trigger on long-term contracts.
S&P Global Market Intelligence sat down with LNG Ltd. CEO Greg Vesey and COO John Baguley at Energy Dialogues' North American Gas Forum in Washington, D.C. The following is an edited transcript of the conversation.
S&P Global Market Intelligence: What is the biggest challenge right now in the current market?
Greg Vesey:
I think what's happening, and the reason I'm a little more optimistic, is there seems to be some general coalescence that 2022, maybe early 2023, is when supply and demand switch, and you've got a shortage again. With that in mind, they are now kind of doing that math backward and saying: 'With construction time, a little bit of contracting time ... I probably need to make a decision within the next year.'
Magnolia has a nonbinding LNG contract with Vessel Gasification Solutions Inc. in India. Do you see it being able to meet the conditions?
Vesey:
Have you seen interest from other companies in India?
Vesey:
It is very out of character for them what they did at [Cheniere Energy Inc.]. I was very surprised by that.
In what way?
Vesey:
Does it worry you that GAIL (India) Ltd has looked to renegotiate its contracts with Cheniere's Sabine Pass?
Vesey:
We have talked before about the U.S.-China trade agreement and how the U.S. LNG industry hopes a formal proclamation will give Chinese buyers the confidence to sign long-term contracts. Have you seen that materialize in the form of more interest from China?
Vesey:
John Baguley
"It really stepped up the interest significantly," LNG Ltd. COO John Baguley said of the U.S.-China trade agreement announced in May. Source: LNG Ltd. |
Vesey:
Are those 'serious discussions' the most advanced negotiations Magnolia is in at the moment?
Vesey:
Does China feel crowded for a U.S. LNG export developer right now? A lot of LNG companies are putting pressure on Chinese buyers.
Vesey:
Baguley:
One of LNG Ltd.'s big pushes is a patent for technology that would be used at Magnolia. Has it been difficult to convince buyers to sign up when you cannot point to another project to show them how it works?
Vesey:
Baguley:
Just as a couple of examples, our [engineering, construction and procurement] contractor — which is KBR together with SK E&C — they take full, unlimited-liability production capacity risk for the plant. So they have to build the plant, start it up and run it at full design capacity, and they face unlimited liabilities associated with failing to do so. And they are willing to stand in front of this. To me, that's a great testament.
And the trains that liquefy the gas are still going to be built offsite, right?
Baguley:
You are also developing the Bear Head LNG export project in Nova Scotia. Are you expecting Magnolia or Bear Head to come online first?
Vesey:
We saw three Western Canadian LNG export projects canceled in six months. Does that get rid of some of your competition?
Vesey: