LNG Project Investing

Brian Hicks

Written By Brian Hicks

Posted August 1, 2013

Liquefied Natural Gas Limited (ASX: LNG) of Australia has successfully raised AU$8 million ($7.1 million) via an oversubscribed shares placement as part of its effort to raise a total of AU$10 million ($8.9 million) to fund its wholly-owned project, Magnolia LNG, in Louisiana.

The remaining AU$2 million is expected to be raised through a Share Purchase Plan, reports Proactive Investors. The Share Purchase Plan is open to all eligible Australian and New Zealand-based shareholders.

Floating LNGThe usual project approval pre-filing work with the U.S. Federal Energy Regulatory Commission remains to be completed. Under the terms of the arrangement, 40 million shares at AU$0.20 each were offered both to institutional and other investors. Current shareholders can buy up to 70,000 further shares for AU$14,455 per the Share Purchase Plan (the plan is capped at AU$2 million).

All of this is part of LNG’s recent agreement with Stonepeak Partners, under which the two will jointly develop the Magnolia LNG project. Stonepeak owns 50 percent in Magnolia LNG as compensation for putting forward the entirety of the $660 million project equity requirement. That’s about 30 percent of the total capital costs, and LNG Limited will likely finance the remainder through project debt.

Once the Magnolia project is completed, Stonepeak will pay a one-time success fee, projected to be 3 percent of the total capital cost (that fee is estimated, at present, to be around $66 million). Beyond that, Stonepeak has agreed to help LNG Limited gain long-term project debt funding to the tune of $1.54 billion. Overall capital cost is expected to be around $2.2 billion, reports Oil and Gas Journal.

LNG Limited, for its part, has already signed a Tolling Term Sheet with Brightstone Overseas for supply of liquefied natural gas to Panama and several other countries covered under the U.S. Free Trade Agreement. The Magnolia project is envisioned as a four-train project with a capacity of 8MMtpa. The first phase will be comprised of two trains, with the rest coming along later.

From Upstream:

“The directors were very pleased with the interest in the placement as it was oversubscribed,” LNG Ltd managing director Maurice Brand said.

“Strong support has been demonstrated by investors in the company’s Magnolia LNG project.”

It looks like everything is in place for LNG Limited to proceed with the formalities. Construction is set to begin sometime in 2015, and the first phase will see 4 million tonnes per year produced from two trains, with the other four million added on through future development.

The Continued Problem of Flaring

This is, by all means, a good development. Let me underscore that in the U.S., we’re still experiencing massive flaring problems. Flaring, for those of you who’re reading about it for the first time, is when gas developers are forced to simply burn off excess gas because there’s no way to transport it or otherwise put it to use.

And right now, flaring is commonplace across the U.S. wherever we’re producing gas (though it’s more acute in shale gas areas). Infrastructure development just hasn’t kept up with the sheer pace of shale gas development. Railways can only do so much; what’s really needed is pipeline infrastructure growth.

And that has been slow to happen. For example, Williston, North Dakota is a focal point for the Bakken shale. The Bakken, as you probably know, is ridiculously productive as far as oil and gas are concerned. Yet there are precious few currently-operating pipelines.

ONEOK Partners (NYSE: OKS) is developing a 525-mile natural gas pipeline that’s due to be completed later this year, while Alliance Pipeline’s Tioga line is also due to be completed soon. Clearly, this isn’t enough. Although global flaring went down by 20 percent between 2005 and 2010, North Dakota saw flaring rise by 50 percent over 2012 alone. In short, we’re wasting some 30 percent of the gas produced in North Dakota right on site.

That’s why projects that can siphon off some of that gas—projects like Magnolia and others—are so crucial. Moreover, they boost the case for American gas exports to the growing LNG markets out East.

Gas export terminals are a hot topic, and presently we’re awaiting federal sign-offs on several of these. Moreover, companies like Caterpillar, Inc. (NYSE: CAT) are trying to harness the gas produced on-site to use it to drive their fracking machinery instead of conventional diesel.


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