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Magnolia LNG investment decision may push to 2020, CEO says

It could be 2020 before Australia's LNG Ltd. builds enough commercial support for its proposed Magnolia LNG LLC export terminal in Louisiana to reach a final investment decision, the top executive said.

In an interview with S&P Global Market Intelligence and S&P Global Platts, CEO Greg Vesey cited the ongoing trade war between the U.S. and China as one factor that could move the decision back. China is expected to become the world's biggest importer of LNG within a decade. Vesey also pointed to a warmer-than-average winter and depressed LNG prices, including in Europe.

"Could it happen this year? Yes," Vesey said in a Sept. 18 interview at the Gastech conference in Houston. "If I'm a betting man, it's probably going to spill over into next year, because I just don't think things will get settled that quickly."

But the CEO and his team believe Magnolia received a much-needed boost when it struck a deal to supply 2 million tonnes per annum of LNG to support a gas-to-power project in Vietnam. That 20-year supply agreement would cover about a third of the capacity that the project needs to contract before taking a final investment decision, or FID, according to LNG Ltd.

Magnolia has struggled to reach FID, despite having an engineering, procurement and construction contract, all regulatory permits, and an offer of LNG production capacity that is a bargain compared to many peers. A previous supply deal with another counterparty lapsed.

Under the recent deal, announced Sept. 15, Magnolia would supply LNG to Delta Offshore Energy, which would use the LNG to fuel a 3,200-MW combined-cycle power plant proposed for Vietnam. The companies did not disclose terms in their joint announcement of the deal. But they said the sale and purchase and power purchase agreements were in term sheet form and still needed to be executed.

Vesey said he did not expect any problems finalizing the deal. He said the timing of reaching a firm agreement depends mostly on decisions by government officials in Vietnam.

LNG Ltd. had previously planned to commercially sanction Magnolia LNG in 2018, but it pushed back its target amid a trade dispute between the U.S. and China, where the company has long courted buyers. Earlier this year, China raised retaliatory tariffs on U.S. LNG to 25%. Magnolia said it is looking beyond China to commercialize the remainder of the project.

Asked if the developer was close to securing additional offtake deals to support Magnolia, Vesey said, "It's hard to say anyone is close in this market."

"I just don't know how soon people are going to start signing things," Vesey said. "If we wake up Monday, and the trade war has been somewhat resolved or they said, we are still working on it but LNG is good to go, it could happen very quickly. Two more deals and we are there."

Harry 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.