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Vietnamese power project tied to Magnolia LNG offtake deal moves forward

Highlights

2 million mt/year of liquefaction supply being discussed

Uncertainty remains for second-wave US terminal developers

Houston — A proposed gas-to-power plant in Vietnam that is tied to a preliminary offtake agreement that would support the Magnolia LNG project in Louisiana has received a key regulatory approval that allows the power project to move forward, the developer of the liquefaction facility, LNG Limited, said Thursday.

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A statement from the backers of the power plant, Delta Offshore Energy, indicated that startup and completion may be later than what LNG Limited previously expected, although LNG Limited said it was sticking to its most-recent anticipated schedule for a final investment decision and first gas at Magnolia.

Magnolia is among a handful of second-wave US liquefaction projects that has struggled to secure sufficient long-term contracts from buyers of the LNG it plans to produce that would give it the support it needs to finance construction. The recent US-China initial trade agreement raised hopes that new LNG commercial deals could occur in the future.

Magnolia LNG already has a permit certificate from US regulators and a fully wrapped engineering, procurement and construction contract. To date, it hasn't announced any firm offtake deals.

On September 16, 2019, it said it had reached what it described as a sale-and-purchase agreement in term sheet form with Delta Offshore covering 2 million mt/year of LNG from Magnolia. The LNG would, in turn, be used to fuel a 3,200 MW combined-cycle power plant that has been proposed in Vietnam. The plant will deliver power generation to Bac Lieu Province under a power purchase agreement.

The day after the initial announcement, LNG Limited issued a new statement, clarifying that the deal was a non-binding memorandum of understanding, which is preliminary in nature. A previous offtake deal with another counterparty lapsed, leaving the Vietnamese agreement as the only one currently in place for Magnolia.

In its latest statement, LNG Limited said Delta Offshore recently received a certificate from Vietnamese officials that represents the final regulatory approval required for the local power project. In its own statement, Delta Offshore said the first 750 MW of capacity would be online by 2024, a year later than LNG Limited had anticipated in September, pending government approvals. Delta Offshore said the power project wouldn't be be fully implemented until 2027 at the latest.

A spokesman for LNG Limited, Micah Hirschfield, said in an email responding to questions that because Delta Offshore would need at least 2 million mt/year of LNG for the power plant's initial startup, the new timeline would still coincide with when Magnolia was targeting its startup.

TIMELINE TARGET

At one time, LNG Limited had planned to reach a final investment decision on Magnolia in 2018, but delayed that until 2019 amid China's imposition of a 10% tariff on imports of US LNG. Those duties were later increased to 25%, where they currently stand, even after the recent Phase 1 trade deal between the US and China. In September, CEO Greg Vesey said it could be 2020 before LNG Limited built enough commercial support to reach an FID.

Asked Thursday if that schedule has been changed further, Hirschfield said the developer had "no additional updates at this time."

The current preliminary agreement between LNG Limited and Delta Offshore, which was amended in October, calls for the parties to try to negotiate a binding contract by May 31 of this year. Financial close of the agreement is conditioned on LNG Limited making an FID on Magnolia by August 31 of this year.

LNG Limited has been among the more aggressive US liquefaction developers in terms of pricing in trying to secure commercial deals for Magnolia. Last year, Vesey told S&P Global Platts that the company was willing to take as little as $2.35/MMBtu and 113% of Henry Hub to secure offtake agreements for the up to 8.8 million mt/year project.