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Cheniere advances efforts to bring Sabine Pass LNG storage tanks back online

Highlights

Leak shuts down two of five tanks nearly two years ago

Additional capacity would aid terminal flexibility

Houston — Cheniere Energy has received approval from the US Department of Transportation's Pipeline and Hazardous Materials Safety Administration to prioritize the return to service of one of the two storage tanks at its Sabine Pass LNG export facility that have been offline since a leak nearly two years ago, a company spokesman said Monday.

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The efforts come as US liquefaction facilities see record utilization, with total feedgas deliveries approaching 9 Bcf/d amid peak winter demand and positive, albeit weak, netbacks.

While the company has effectively managed operations at the Louisiana terminal with its other three storage tanks during the outage, being able to use the additional capacity will give it more flexibility, especially during times when consumption is high or access to feedgas may be limited because of pipeline maintenance.

An inadvertent release of gas January 22, 2018, led to the shutdown of tanks 1 and 2 at Sabine Pass in Cameron Parish. Cheniere said in August 2019 that repairs were complete and that it expected both storage tanks to be operational by the end of the year if there were no further regulatory delays.

But it has yet to get the formal go-ahead from the agencies to bring the tanks online, as it works to satisfy corrective actions PHMSA and the Federal Energy Regulatory Commission required that were meant to prevent a recurrence.

Among other things, the agencies said previously they were waiting for additional testing and examination, procedure modifications, and documentation. In recent weeks, Cheniere has submitted numerous documents in support of requests to close out various tank operation conditional requirements that the two agencies set.

"We recently received approval from PHMSA to prioritize the return to service of Tank 1, reflecting the progress we have made on both tanks, but especially Tank 1," spokesman Eben Burnham-Snyder said in an email responding to questions. "We'll continue to work with PHMSA and FERC to bring both tanks back safely."

He did not specify a target for having either tank up and running. PHMSA officials did not respond to a call and an email seeking comment.

US Gulf Coast LNG netbacks from the Platts JKM, the benchmark price for spot-traded LNG in Northeast Asia, fell to 86 cents/MMBtu as of Monday, down 30 cents from the beginning of the month as the global LNG markets have struggled under the weight of rising US production, S&P Global Platts Analytics data show.

The netback from the Dutch Title Transfer index, or TTF, has fared even worse, with spreads now just barely trending above breakeven, after accounting for all variable costs of production and transport. The forward curves indicate that spreads into Asia will continue to weaken through the remainder of the fall, which could initiate an earlier-than-normal round of maintenances, similar to last year.

PRODUCTION RAMP-UP

In the meantime, feedgas flows to the six major US LNG export facilities have remained high, and at about 8.8 Bcf/d on Monday were slightly below a record level set December 31, Platts Analytics data showed. The ramp-up includes commissioning of Train 2 at Sempra Energy's Cameron LNG in Louisiana and the bringing online of additional trains at Kinder Morgan's Elba Liquefaction in Georgia. Besides Sabine Pass, Cheniere operates an export facility near Corpus Christi, Texas, while privately held Freeport LNG operates in Texas, and Dominion Energy operates Cove Point in Maryland.

The name of the game is the ability to generate incremental cash, whether it's a full-service operator like Cheniere or offtakers at tolling facilities like Cameron LNG and Freeport LNG, said E. Scott Chrisman, a market expert and former global head of LNG marketing for Sempra's LNG unit. "If they'll make 5 cents, it better be simple. If they're making $1, they'll jump through hoops," Chrisman said in a telephone interview.