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10-08-2012 00:16:00

UPDATE: Cheniere Proceeding With LNG Export Facility in Louisiana

--Construction start on first LNG export facility in lower 48 states

--Cheniere had been on brink of bankruptcy just years earlier

--LNG export economics still being debated

(Updates with details, analyst comments.)

By Ben Lefebvre and Angel Gonzalez

HOUSTON--Cheniere Energy Partners L.P. (CQP) is moving ahead with the construction of facilities to liquefy and export natural gas in Louisiana, bringing the U.S. one step closer to becoming a major exporter of the commodity.

The company said Thursday it had given engineering contractor Bechtel Oil, Gas and Chemicals Inc. the green light to start building two liquefaction trains at its Sabine Pass, La., import terminal. The first liquefaction train, which will turn natural gas stemming from booming U.S. shale fields into liquid that can be exported overseas, is expected to start operating as early as 2015, and the second train will start six to nine months later, the company said.

Each train will be able to export about 2 billion cubic feet a day of gas to countries where the commodity costs exponentially more than the domestic U.S. price, now at $2.90 a million British thermal units. The U.S. produces about 72 billion cubic feet a day of natural gas.

Cheniere signed 20-year supply contracts with the U.K.'s BG Group PLC (BG.LN), GAIL (India) Ltd. (532155.BY) and Korea Gas Corp. (036460.SE). The agreements enabled Cheniere to obtain the hefty financing needed for the project.

The U.S. exports relatively small quantities of LNG to Japan out of Alaska, but the Sabine Pass facility would be the first terminal to do so out of the lower-48 states. Such a move is a big hope among U.S. natural gas producers, which became victims of their own success when they unleashed unexpectedly massive amounts of the commodity from shale formations. A market glut for natural gas led prices for the commodity to decade-low levels in April; exports could help ease that glut and give producers access to more profitable markets abroad.

"For the whole industry, it is a step forward," said Morningstar analyst Mark Hanson.

However, some U.S. chemical producers, which use natural gas to manufacture their wares, are against exporting large quantities of the commodity because it could help raise its price to about $6 a million British thermal units by 2016, according to some experts. But prices at that level could also spur more drilling and prevent further increases, said Leslie Palti-Guzman, an analyst at global risk firm Eurasia Group.

Cheniere, which originally built the Sabine Pass facility to import natural gas at a time when experts perceived there would be shortages of the commodity, began its effort to turn it into an export terminal about two years ago.

"It is a testament to the flexibility of the U.S. markets and institutions that a small company like ours was able to accomplish so much in a short time," said Cheniere Chief Executive Charif Souki.

Cheniere expects the project to cost about $5.6 billion, funded by $2 billion of equity and $3.6 billion of debt. The effort is backed by private equity firm Blackstone Group (BX).

"We are pleased to provide the growth capital to fund the construction of the first LNG export facility in the continental United States, creating thousands of jobs for American workers and providing significant benefits to the U.S. economy," David Foley, senior managing director of Blackstone, said.

Cheniere is the only company that has received approval from the Obama administration to export LNG to countries lacking a free-trade agreement with the U.S.

Nearly 10 other proposals are pending before the Energy Department, but the agency says it won't approve any additional projects until it finishes a comprehensive review of the exports' impacts on the U.S. The Energy Department is expected to complete that review later this summer.

-Tennille Tracy contributed to this article.

Write to Angel Gonzalez at angel.gonzalez@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

August 09, 2012 18:16 ET (22:16 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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