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Pembina says Jordan Cove LNG terminal budget to be reviewed in 2018

Houston — The new operator of the proposed Jordan Cove LNG export terminal in Oregon said Friday it has become more positive about its potential with the shorter route it offers to Asia and the interest it continues to receive from prospective buyers of its supply.

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But Pembina Pipeline cautioned that development and construction costs would play into its decisions about future budgeting for the project.

Pembina did not immediately respond to a query for comment on whether the company, which took over the project after acquiring fellow Canadian pipeline operator Veresen last month, is fully committed to seeing Jordan Cove through to completion.

"Clearly, it is a huge project and we're looking at it carefully," Pembina CEO Mick Dilger said during a conference call with analysts to discuss third-quarter financial results. "It does have a significant burn rate, and we have to carefully review the risk-to-reward profile."

Dilger said that analysis would be done as part of the company's 2018 budget review. Burn rate refers to how quickly a developer spends its development and operating budget for a project, a factor that could lead to cost overruns. Jordan Cove has not yet reached a final investment for the project.

Jordan Cove would provide an outlet for Rockies gas producers who have been getting squeezed from all directions as a result of growing Permian production, steadily declining Southwest demand, as well as pushback from US Northeast expansions bringing more gas into the Midwest markets.

Basis at Rockies supply hubs has seen steady downward pressure this year as a result of increasing competition from other supply regions, data compiled by Platts Analytics' Bentek Energy show.

Basis pricing at the Opal hub in southwest Wyoming averaged a 28 cents/MMBtu discount to Henry Hub through the first 10 months of the year, 10 cents weaker than the same time period in 2016, Platts Analytics data show.


In September, prior to the combination with Pembina, Veresen filed its second formal application to US regulators seeking approval of Jordan Cove, betting commercial support it received since its first request would push the project over the finish line after more than four years of trying.

The current crop of US LNG export developers that are still going through the regulatory process have been struggling amid fears of a global supply glut to sign long-term agreements with buyers to help raise the billions of dollars they need to build their terminals.

Several, including NextDecade's Rio Grande LNG project in Brownsville, Texas, have delayed final investment decisions and extended expected in-service dates.

Others are eyeing creative ways to prove viability, such as Tellurian's decision to buy gas-producing assets in Louisiana that will provide access to cheap supplies to its proposed Driftwood LNG export terminal.

Tellurian also has floated the idea of fixed prices for shipments to Asia.

It was Jordan Cove's failure to show sufficient demand for its project to outweigh any negative impacts from the construction that was cited by the Federal Energy Regulatory Commission as a key reason for the agency's March 2016 permit denial.

Less than two weeks later, Veresen announced that it had signed a preliminary agreement covering key commercial terms with one Japanese firm, Jera, and the next month it reached a preliminary agreement with another, Itochu.

FERC refused to reconsider the initial application, which was filed in May 2013, but left open the opportunity for Veresen to file a new request.

With Veresen now under its fold, Pembina is left with the decision making about Jordan Cove's future.

The company reiterated Friday that it is targeting a final investment decision for 2019 and an in-service date of 2024. In a slide presentation accompanying its investor call, a plus sign was next to both dates, suggesting that FID and in-service could be pushed later.

In the meantime, the company is proceeding through the FERC process and working on finalizing existing agreements with offtakers, as well as securing agreements for its remaining capacity.

The preliminary offtake deals with Jera and Itochu cover approximately half the 1 Bcf/d of capacity of Jordan Cove's initial phase and 77% of the capacity of the Pacific Connector pipeline that would supply feedgas to the terminal.

Executives said they expect a FERC permit decision during the latter part of 2018.

"I would characterize where we are now is having gone from neutral to favorable on the project," Dilger said. "We have been around the world meeting with potential customers. It does seem to us the timing and location of the project are favorable, and we are seeing quite a substantial interest in the project."

--Harry Weber,
--John McManus,
--Edited by Richard Rubin,