26 Sep 2017, 9.01 pm GMT argusmedia.com
Houston, 26 September (Argus) — Cheniere Energy today asked federal regulators for authorization to place the fourth liquefaction train into long-term service at its Sabine Pass LNG terminal in Louisiana, after completing testing of the unit.
"Commissioning demonstration tests, which confirm the facilities can be operated safely and reliably have been successfully completed for train 4, thus Sabine Pass confirms that train 4 can be expected to operate safely as designed," Cheniere told the US Federal Energy Regulatory Commission.
Trains 1-3 were previously placed into long-term service. Train 4 started producing test cargoes in late July, Cheniere has said.
Once train 4 is placed into long-term service, it will be operated by Cheniere rather than engineering firm Bechtel, which is building the liquefaction trains at Sabine Pass.
The fourth liquefaction train was financed by a 20-year contract with Indian gas utility Gail that will start on 1 March 2018.
Until then, Cheniere can market the entire output from train 4 on its own or even take the train off line if there are not enough buyers for spot or short-term supplies in the current weak LNG market.
Cheniere is building five liquefaction trains at the $20bn Sabine Pass terminal, each with peak capacity of 5mn t/yr, equivalent to about 694mn cf/d (19.6mn m³/d) of gas, and baseload capacity of 4.5mn t/yr, or 625mn cf/d of gas. Train 5 is scheduled to come on line in the second half of 2019.
Sabine Pass, the largest single-point gas consumer in the US, will typically need about 2.5-2.8 Bcf/d of to operate four trains. Today's gas intake is scheduled to 2.84 Bcf, a daily record, according to pipeline nominations.
Flows dropped to an average of 2.07 Bcf/d on 23-25 September, after averaging 2.67 Bcf/d on 15-22 September.
Gail, which has a contract for 3.5mn t/yr of Sabine Pass supplies, is the only long-term customer at the facility that does not have the option to not take LNG. Gail must pay for all its volumes a liquefaction fee of $3/mmBtu plus an LNG fee of 115pc of the Nymex Henry Hub final settlement for a month in which cargo is scheduled, unless Cheniere finds an alternate buyer for a specific cargo. If Cheniere find an alternate buyers Gail must still pay the liquefaction fee for that cargo but Cheniere would deduct any profit from Gail's LNG fee. Other long-term customers have the option to cancel cargoes and only pay their respective liquefaction fees for cancelled volumes.
Gail has said it wants to lower its liquefaction fee because it would make its US LNG uncompetitive with spot supplies from other parts of the world. Cheniere has said it expects Gail to honor its contract.
Gail has overbought US LNG capacity. It has another 20-year contract for 2.3mn t/yr scheduled to start late this year from Dominion's Cove Point LNG facility in Maryland.
It will be interesting to see if Cheniere decides it is a good investment in cost control and maintaining its first mover competitive advantages by following the Tellurian example and buying Haynesville Shale reserves.