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Liquefied Natural Gas Limited Signs Binding Pipeline Deal For Magnolia

Liquefied Natural Gas Limited (ASX: LNG) has executed a legally binding pipeline capacity agreement with Kinder Morgan Louisiana Pipeline LLC (KMLP) for its Magnolia liquefied natural gas (MLNG) export project at the port of Lake Charles, Louisiana.

The Precedent Agreement secures sufficient firm gas transportation service rights for the project's full 8 million tonnes per annum production capacity.

This agreement is the fourth major milestone for the MLNG project following the Lease Option Agreement, the LNG Export Approval and the Equity Commitment Agreement.

KMLP will now proceed to file its application with the Federal Energy Regulatory Commission (FERC) to install new pipeline compression facilities and additional pipeline and interconnect facilities to provide such new transportation service.

Notably, KMLP's FERC approval process will run in parallel with FERC's regulatory review of the MLNG Project with the expectation that MLNG will file its formal application with FERC in March/April this year upon completion of the FERC pre‐filing process.

"This is the first major milestone that the MLNG Project wanted to achieve early in 2014 and augurs well for the receipt of timely approvals under the FERC approval process," managing director Maurice Brand said.

"One of the main benefits of the MLNG Project site is that the existing KMLP pipeline directly transverses the site.

"This has directly assisted the company in developing the MLNG Project in a timely and cost effective manner and will materially contribute to the MLNG Project potentially being in the first 5 US LNG export projects to achieve commercial operations."

Other Milestones

LNG Limited had previously reached a Lease Option Agreement with the Lake Charles Harbour and Terminal District, securing the 115 acre MLNG Project site for up to 70 years.

It had also secured the key LNG Export Approval from the Department of Energy, Office of Fossil Energy, for up to 4Mtpa (with an application submitted to increase this to 8Mtpa) over 25 years to all existing, and any future, countries that have, or enter into, a Free Trade Agreement with the Government of the United States.

Project funding also received a boost with the Equity Commitment Agreement with Stonepeak Partners, which is underwriting the full equity requirement of US$660 million for the construction and commissioning of the MLNG Project's initial two LNG trains.

Magnolia LNG

MLNG is planned as a 8 million tonne per annum (Mtpa) liquefied natural gas export project comprising of four liquefaction trains, each capable of producing up to 2Mtpa of LNG (1.7Mtpa firm), that is fast-tracked for a robust Final Investment Decision in mid-2015.

This will use LNG Limited's OSMR® LNG process technology with the company adopting a tolling business model whereby Magnolia LNG will provide liquefaction, storage and ship loading facilities to LNG buyers who pay a monthly fixed capacity fee, plus all LNG plant operating and maintenance costs.

The LNG buyers are also responsible for the supply and transportation of gas to the project site.

MLNG is well positioned to provide access for the loading of LNG onto LNG ships for exports, LNG Barges for marine distribution to mini‐LNG refuelling stations as well as LNG Trucks for potential road distribution to LNG refuelling stations within Louisiana and other surrounding U.S. states.

In addition, the site is located within 3 miles of three major underutilised pipelines including the Kinder Morgan Louisiana Gas Pipeline that is located on site.

This enables the project to take advantage of 11 major gas transportation corridors that mitigates infrastructure risks and allows it to tap the country's massive shale gas production.

Stonepeak Partners is earning an estimated 50% stake in MLNG return for contributing the full US$660 million project equity requirement.

This represents 30% of the total capital costs with LNG Limited planning to finance the remaining 70% with project debt.

To that end, the company has appointed BNP Paribas Bank as its project finance advisor.

It will also work with Stonepeak and New York based EAS Advisors, which had been instrumental in LNG lining up funding and partners for the project, to secure the proposed project debt financing for the Stage 1 development.

A Tolling Term Sheet for up to 2Mtpa has been signed with Guvnor along with a Heads of Agreement with GasNatural that effectively underpins the base case for the project. In addition, a 2Mtpa Tolling Term Sheet has been signed with LNG Holdings.

Analysis

The signing of the pipeline capacity agreement covering the full 8 million tonne per annum production capacity for the Magnolia liquefied natural gas (MLNG) export project is another tick in the box for LNG Limited as it progress it towards development.

It also marks the first major milestone for the company in 2014 and paves the way for other developments this year.

This includes its submitting an application to the US Federal Energy Regulatory Commission (FERC) for full filing status for MLNG in March/April 2014.

Approval by FERC will pave the way for construction to begin at MLNG and could allow LNG Limited to mirror Cheniere Energy's (NYSEMKT:LNG) growth.

Cheniere is now a US$10.67 billion valued company with shares priced at US$44.65.

At the time that it received FERC approval in April 2012 to build an export plant for liquefied natural gas at Sabine Pass in Louisiana, it was trading at around US$12 a share.

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