The first U.S. liquefied natural gas (LNG) export cargo from the Lower 48 is now likely within just a week or two of shipping from the Cheniere Sabine Pass, LA terminal. In the meantime, physical flow data is already giving us a first glance at how the terminal will be supplied from U.S. natural gas production. In today’s blog, we begin a look at flows to the terminal, how the gas is getting there and where it’s coming from.
In recent months, there has been a flurry of completion and commissioning activity around Sabine Pass. Filings with the Federal Energy Regulatory Commission (FERC) indicate the terminal has been furiously readying its first two liquefaction trains over the past few months in preparation for loading its first export cargo. As we detailed previously in our blog series Begin the Sabine, Cheniere Energy’s Sabine Pass LNG (SPL) export terminal in Cameron Parish, LA along the Texas-Louisiana border, is one of four such brownfield projects targeting gas exports from the US, and the first to begin operations.
The terminal will ultimately include six liquefaction “trains,” each with the capacity to supercool up to 650 MMcf/d of natural gas into LNG (at -260 oF) for a total capacity to produce 3.8 Bcf/d for loading and shipment overseas. The facility also has 17 Bcf of LNG storage capacity on site. Construction of the first train was completed and commissioning activity began last fall. And just last Friday (February 19, 2016), SPL filed a request for authorization to introduce fuel gas to train 2 “at the earliest date possible, but no later than March 4, 2016” in order to begin commissioning activities for the second train. Additionally, pipeline flow data from our friends at Genscape indicates that more than 3 Bcf of gas has physically flowed to the terminal in just the past two weeks, suggesting the liquefaction process is underway. Reuters is reporting that two LNG tankers in the Gulf of Mexico are at the ready to take the cargo, one having docked at the terminal just this past Sunday (February 21).
The terminal’s activity and the imminent first cargo of physical gas exports from the lower 48 U.S. are historic events in their own right, with long-term implications for both the global and U.S. natural gas supply/demand balances. But on a more granular level within the U.S., the exports also will have more localized impacts on regional flows and pricing based on where the supply is sourced and how that gas will get there. Cheniere has lined up commitments for the vast majority of each train’s liquefaction capacity through Sales and Purchase Agreements, or SPAs, with various counterparties. To fulfill these commitments, Cheniere secured upstream supply and transportation capacity to serve the trains. In a January 2016 company presentation, Cheniere restated that it has entered into 1-7 year term gas supply contracts with producers for an aggregate of approximately 2 Tcf for an average price of Henry Hub minus $0.10/MMBtu. The supply contracts cover ~50% of the required daily load for Trains 1-4. To ensure transportation capacity to bring supply to the terminal, Cheniere also has commitments on existing and planned expansion pipeline capacity (see Part 2 of Begin the Sabine for more on that).Thus, flows around the terminal will continue to evolve based on expected pipeline expansions and related supply contracts kicking in over the next year. Additionally, some of these flows could be seasonal. By looking at initial flows to the terminal, as seen in the daily pipeline flow data, we can provide an early glimpse of this picture. We’ll start today with a quick review of the available pipeline capacity serving the terminal and deliveries to date. Next time we’ll take a detailed look at where the supply is coming from.