Freeport LNG terminal

Freeport LNG Seeks Financing for $11 Billion Natural Gas Export Facility

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June 27, 2013

Freeport LNG terminal on Quintana Island, about 70 miles south of Houston, Texas. Photo: Freeport LNG

June 27 (Bloomberg) — Freeport LNG Development LP is seeking financing to start construction next year on an $11 billion natural-gas export facility in Texas that in six years is scheduled to ship 2.1 billion cubic feet of gas a day.

Funds will be sought for the first two units that will cost about $7.5 billion, Michael Smith, Freeport’s chief executive officer, said in an interview in Houston yesterday. The company will also seek $1 billion to help retire debt that’s on top of the $11 billion project costs, he said. Financing will be sought for a third unit, or train, in 2014, for the balance of the costs, he said.

One train a year is expected to open in 2017, 2018 and 2019, Smith said. He said financing will have equity and debt components. Last month, the U.S. Energy Department conditionally authorized exports from part of Freeport’s project, saying they likely would yield net economic benefits.

Increased output from shale formations in North America has led to proposals for about 30 billion cubic feet of daily U.S. gas export capacity. Cheniere Energy Inc. has the first project in the lower-48 states to gain full approval for exports of liquefied natural gas, or LNG.

The Energy Department’s Freeport approval covers 1.4 billion cubic feet a day of capacity. The company is seeking approval for another 1.4 billion cubic feet a day for a planned third train and a possible fourth unit the company may consider in the future.

Approving Projects

Smith said the U.S. should approve all of the pending applications and let the market decide which projects succeed. By the end of 2022, the lower-48 states may see as many as six LNG export projects built totaling perhaps 6 billion to 10 billion cubic feet a day, he said.

“They should all be approved because the government shouldn’t be picking winners and losers, but the market isn’t deep enough for more than four, five or six of these facilities,” Smith said.

Freeport still must gain approval from the Federal Energy Regulatory Commission, which Smith said may occur early next year.

Freeport has agreements with Osaka Gas Co., Chubu Electric Power Co. and BP Plc for use of the planned export facility. Freeport may announce customers for the third train later this year, Smith said.

– Edward Klump, Copyright 2013 Bloomberg.

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