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Cheniere settles with US safety regulators over LNG storage tanks mishap

Highlights

Cheniere Energy and US safety regulators reached a settlement, disclosed Monday, that is expected to eventually allow the company to return to service two storage tanks at its Sabine Pass LNG export terminal in Louisiana that have been offline since an inadvertent release of gas earlier this year.

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The deal with the US Department of Transportation's Pipeline and Hazardous Materials Safety Administration calls for repairs and continued investigation of the root cause of the mishap that occurred January 22, while also suggesting that once modifications are made and the terms are followed the company will be able to seek approval for restart of the tanks.

Cheniere spokesman Eben Burnham-Snyder said in an emailed statement the company is focused on bringing Tank 1 safely back into service and pursuing a repair plan to bring Tank 3 back into service. The market has been closely watching the developments amid concern a prolonged shutdown could affect global supply.

"Cheniere's goal has been to safely and quickly address this incident, and [it] believes there is not -- and has not been -- a public safety threat," Burnham-Snyder said.



On February 8, PHMSA issued a corrective action order to Sabine Pass Liquefaction, requiring the shutdown of the two LNG storage tanks, following the earlier release from one of the tanks. That effectively lowered capacity from the facility's full, five-tank, 17-Bcf design. The critical change meant that LNG production at Sabine Pass has faced greater operational risk, though Cheniere has said there has been no impact on exports.

The settlement says a review of what caused the mishap will continue, and also sets forth ongoing reporting requirements by Cheniere.

"Sabine must submit monthly reports to the director that: (1) include all available data and results of the testing and evaluations required by this agreement and order; (2) describe the progress of the repairs or other remedial actions being undertaken; and (3) provide information on all other activities being undertaken pursuant to this agreement and order," the settlement says.

Market fundamentals continue to support high utilization of US LNG facilities, allowing Sabine Pass to average 95% utilization since the beginning of the year, S&P Global Platts Analytics data shows. This translates to feedgas deliveries averaging 2.9 Bcf/d over the same timeframe.

Netbacks to Platts' Japan Korea Marker and to the UK 's National Balancing Point trading hub have averaged $2.18/MMBtu and $2.65/MMBtu, respectively, over the month of April, and the forward netbacks to NBP show continued strength into the summer, with netbacks averaging $2.77/MMBtu.

Cheniere became the first US exporter of LNG produced from shale gas when Sabine Pass shipped its initial cargo in February 2016. Dominion Energy became the second when its Cove Point terminal in Maryland exported its first cargo in March.

(Updates with details from settlement, pricing)

--Harry Weber, Harry.Weber@spglobal.com, and Liz McFarland

--Edited by Jonathan Dart, newsdesk@spglobal.com