Investing in the Magnolia LNG Project

Another U.S. LNG Project Moves Forward

By Justin Williams
Monday, December 2nd, 2013

The Magnolia LNG project situated in Lake Charles, Louisiana may soon secure the $1.54 billion debt funding that it requires.

Australia’s Liquefied Natural Gas Limited (ASX: LNG), who is the 100 percent owner of project company Magnolia LNG LLC, has already signed a Tolling Term Sheet with LNG Holdings Corp. in relation to the project.

LNG terminalAnd last week, the Australian reported Liquefied Natural Gas Limited had appointed BNP Paribas (Paris: BNP) as partner in securing the debt, pushing the project one step closer to joining the ranks of U.S. led liquefied natural gas (LNG) exports. Liquefied Natural Gas Limited responded that it has not, in fact, signed a mandate letter with any bank, though BNP Paribas is one of the banks with which it is in discussions.

The Term Sheet is for a 20 year Tolling Agreement that will maintain LNG production capacity of 1.7 million tons per year, according to OilVoice. The Magnolia – or MLNG, as it may be referred – will comprise of up to four gas liquefaction trains, each with a guaranteed capacity of 1.7 million tons per year and an estimated nameplate capacity of 2 million tons per year.

The Term Sheet will be in effect until June 30, 2014, with provisions that will allow participating parties to enter into a Tolling Agreement.

The Plan

With a proposed Tolling Agreement on the table, LNG Holdings would be responsible for delivery of gas to the MLNG for liquefaction, storage, and delivery aboard designated ships and will pay for tolling services to the Magnolia at a fixed monthly capacity fee over the 20 years of the term agreement. Other fees would be varied based on the Magnolia Project’s fixed and variable costs in operating and maintenance.

A key aspect to this agreement will be that of the federal and state permits, which are likely to come in 2015. From there, construction would begin, and we would likely see the startup of the Magnolia’s first operations sometime in 2018.

The Magnolia has already received approval from the U.S. Department of Energy (DOE) to export 4 million tons per year of LNG to countries that have a Free Trade Agreement with the U.S. Magnolia officials are now in the process of lobbying and have applied for an additional 4 million tons per year to add to that, according to OilVoice.

In addition, the project is seeking approval to export 8 million tons per year of LNG to countries that do not possess a Free Trade Agreement with the U.S.

No doubt, Louisiana’s Magnolia has lofty expectations.

Getting Involved

Shipping will take place by LNG Holdings and its operating partner Hoegh LNG Holdings Ltd., making deliveries to both domestic and international markets through what they are calling the Floating Storage and Regasification Unit (FSRU) network.

Barring any restrictions from the DOE and further permits, supplies will go to Hoegh’s Port Dolphin project in Tampa, Florida and LNG Holding’s Port Ambrose project in Long Island, New York, as well as the U.K.'s Port Meridian LNG import terminal, according to OilVoice. Other destinations will be determined based on the future of the Magnolia Project and what is suitable for FSRU vessels.

As for BNP Paribas – the France-based bank group that is one of several in line to provide financial backing to the project – we'll have to wait for the company to officially sign a finance advisor mandate. BNP also partakes in retail banking, corporate and investment banking, investment solutions, and other activities.

Liquefied Natural Gas Limited is putting a lot of eggs into its Louisiana basket, but this company has LNG prospects that extend far beyond the U.S. shoreline. It operates in three segments: oil and gas project development, investing in existing oil and gas discoveries and prospective acreage, and technology development. The Magnolia is only its latest in a string of big LNG moves while it waits for U.S. approval.

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LNG Investing

Magnolia’s President, Mr. Maurice Brand, summed up this project best when he said, according to OilVoice:

“This is another valuable step forward for the MLNG Project. In addition to plans to supply LNG to the UK, we are particularly pleased to embrace a unique United States domestic LNG supply option, which has the potential to materially benefit consumers from Florida to New York.”

We have to remember that it will be a few years in the making. But to me, it definitely seems like a promising venture. This thing is going to blow up – once it gets off the ground.

But look around for a second. The LNG spot market has the whole world in a frenzy. Countries like Australia, Mozambique, and Canada are getting invoved – and buyers don't want to wait forever while the U.S. gets in gear.

Canada's LNG projects might be the most appealing right now. Regulations are set more loosely, and shipments are most definitely set to start rolling out.

Everybody wants to talk about the U.S., but it’s Western Canada that the Chinese have shelled out $23 billion to.

Chinese demand is only expected to double within the next two years – from about 26 billion cubic meters of LNG per year now to nearly 65 billion cubic meters.

And while we’re taking a look north, zero in on Chevron (NYSE: CVX). Earlier this year, the company took 50 percent ownership in the Kitimat LNG project in British Columbia.

That’s where I’d start.

 

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