Texas could again be an exporter of energy if Freeport gains capacity

By TOM FOWLER Copyright 2010 Houston Chronicle

Nov. 22, 2010, 10:54PM

Texas could return to the old days of being a global energy exporter if the owners of a Freeport liquefied natural gas terminal get their way. Freeport LNG is
partnering with Australian bank Macquarie to build the capacity to turn
U.S. natural gas into a liquid for shipment overseas.

The Freeport terminal, which opened on the Texas coast in 2008 to import liquefied natural gas from other countries, has already added the capacity to ship
some of that LNG back overseas because of overproduction of the fuel in
the U.S.

But adding the capacity to liquefy U.S.-produced natural gas for export shows just how deep the country's natural gas glut has become, thanks to the widespread
success of prolific shale formations from Texas to New York.

"The shale story just kept building and building over the past few years until, finally, we did the engineering and it just made sense," said Michael Smith,
Freeport LNG's chairman and CEO.

The plans include building up to four units that can turn natural gas into a super-chilled liquid that can be shipped by tanker. The $2 billion project should be
able to export up to 1.4 billion cubic feet per day of gas by 2015, the
companies said.

Half of the project's capacity will be offered to Freeport's existing import customers — Dow Chemical and ConocoPhillips - while Macquarie and
Freeport will jointly market the other half.

Asia seems a likely market for U.S. LNG, given current market dynamics and the fact that the Panama Canal is opening soon to LNG tankers, said Nicholas O'Kane,
global head of Macquarie Group's energy markets division in Houston.

"But we'll be marketing in Europe in the next few weeks as well," O'Kane said.

If Freeport and Macquarie are able to sign up customers committed to buying the LNG for up to 20 years, they will use those com- mitments to fund the project
through U.S. debt markets.

One source of the natural gas for the Freeport export project will likely be the Eagle Ford shale formation in South Texas.

While drilling in other shale formations has slowed in the past year because of low natural gas prices, the Eagle Ford has continued to ramp up because it
is also heavy with natural gas liquids and other fuels that are still
fetching higher prices.

"The gas production in the Eagle Ford is expected to exceed the takeaway capacity unless there's some other market for it," Smith said.

Smith said the LNG pro-ject could employ up to 1,000 workers over the three to four years it takes to build, and it could export $4 billion to $6 billion in
natural gas per year.

"That could reduce our trade deficit by up to 1 percent per year," Smith said. "That's a lot for one project."

The U.S. surge in natural gas production, combined with the startup of a number of large LNG terminals in Middle Eastern countries, has the International Energy
Agency predicting the world will be swimming in natural gas through
2020.

Natural gas demand will rise, but it will take until 2020 to absorb the surplus, the agency said.

Earlier this month, Cheniere said it also plans to build gas liquefaction capacity to export LNG from its facility in Sabine Pass.