Cheniere starts producing at shale gas export terminal, ING says

By NAUREEN S. MALIK AND HARRY R. WEBER on 12/31/2015

HOUSTON (Bloomberg) -- Cheniere Energy Inc. began production at what will become the first terminal to export natural gas from America’s shale formations, according to ING Capital LLC, which helped finance the project.

The company is receiving about 50 MMcfd of the fuel, chilling it into liquefied natural gas at the Sabine Pass terminal in Louisiana, and storing it in tanks before the first export, Richard Ennis, head of natural resources at ING, said by email on Wednesday. Ennis said he receives regular updates from the company and that he hadn’t been informed of a delay in the startup. Cheniere spokeswoman Faith Parker didn’t immediately respond to telephone and emailed requests for comment on Wednesday.

Cheniere has previously said the inaugural cargo will leave the complex in January by tanker and that UK-based BG Group Plc is contracted to take the first shipment. Sabine Pass is “on schedule,” Ennis said. “You can’t dock a ship to offtake the LNG, until you have a full ship load of LNG in the tanks, which is planned to happen in January.”

The start at Sabine Pass paves the way for other planned liquefied natural gas terminals that are projected to turn the U.S. into one of the world’s largest suppliers. The country may be capable of exporting 7.76 Bcfgd by 2019, a Bloomberg New Energy Finance analysis shows. While the U.S. has been sending gas abroad from Alaska for years, Cheniere’s cargo would mark the first to leave from the lower-48 states, a testament to surging shale supplies that have sent domestic stockpiles to record levels.

Shale Boom

Cheniere’s export terminal underscores how dramatically the shale boom has reshaped the natural gas market. Before drillers started pulling the fuel out of tight-rock formations using hydraulic fracturing and horizontal drilling, Cheniere was building import terminals in anticipation of a domestic shortage. Following the onslaught of shale gas, Cheniere started retrofitting terminals for exports.

The U.S. cargoes will mark “a paradigm shift for the industry,” Hadi Hallouche, head of liquefied natural gas trading at Trafigura Beheer BV, said by phone from Geneva.

Pipeline Nominations

The supply of natural gas scheduled to arrive at Cheniere’s Sabine Pass terminal from two pipelines for liquefaction has surged to 128,987 dekatherms as of Wednesday from just 6,720 a month ago.

Cheniere has had a rocky year, dealing with a slide in U.S. natural gas prices, the ouster of its co-founder and CEO, Charif Souki, and scrutiny from billionaire activist investor Carl Icahn. Its stock has fallen 48% this year.

With gas demand in parts of Asia weakening, U.S. suppliers are turning their attention to Europe as their primary market. BG Group spokeswoman Kim Blomley referred a request for comment on the startup to Cheniere on Wednesday.

Plants such as Sabine Pass will cool and liquefy natural gas to 1/600th of its volume for easier loading onto tankers. Cheniere plans to build at least six “trains” that produce LNG at Sabine Pass by late 2018, allowing the terminal to supply more than 3.5 Bcfgd. The project is estimated to cost at least $15 billion.

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