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Liquefied Natural Gas' Magnolia LNG Receives Draft Environmental Statement

Liquefied Natural Gas Limited (ASX:LNG, OTC ADR:LNGLY) has achieved another milestone for its Magnolia LNG project, with the United States Federal Energy Regulatory Commission (FERC) issuing the Draft Environmental Impact Statement (DEIS).

The Magnolia LNG project, located in the Port of Lake Charles, Louisiana, USA has been scoped as an 8 million tonne per annum (Mtpa) liquefied natural gas export project comprising of four liquefaction trains.

Each would be capable of producing up to 2Mtpa of LNG (1.7Mtpa firm).

This is using the $2 billion valued company's wholly owned OSMR® LNG process technology.

First liquefied natural gas from the project is planned for December 2018.

The FERC issued the DEIS on Friday, 17 July 2015 and is a critical milestone for the Magnolia LNG project, incorporating comments from FERC and other cooperating federal agencies.

The FERC is the lead federal agency responsible for conducting the environmental review for Magnolia LNG.

The FERC set 8 September 2015 as the deadline for receipt of public comments on the DEIS.

Based on the Notice of Schedule for Environmental Review, previously issued by FERC on 30 April 2015, the Final Environmental Impact Statement (FEIS) is expected to be issued by FERC on 16 November 2015.

In its work toward issue of the DEIS, the FERC analysed publicly available data and data provided by both Magnolia LNG and Kinder Morgan Louisiana Pipeline LLC (KMLP).

This is related to the construction and operation of the Magnolia LNG project and natural gas pipeline infrastructure required to deliver natural gas to the operating liquefaction terminal.

LNG Limited's managing director and CEO, Maurice Brand said, "We are very pleased with our progress on the FERC regulatory aspects of the project and look forward to the receipt of the FEIS in November this year.

"Magnolia LNG is planning for Financial Close in first quarter 2016 with first LNG in December 2018."

Magnolia business model

Magnolia LNG's business model provides liquefaction services to LNG buyers who pay a monthly fixed capacity fee, plus all LNG plant operating and maintenance costs.

LNG buyers contract for liquefaction services under two contract models - a Liquefaction Tolling Agreement, whereby the LNG export terminal is only responsible for processing natural gas into LNG, and an LNG Sales and Purchase Agreement under which the customer buys LNG on a free on board basis (FOB).

Analysis

This is another value accretive milestone for LNG. While its market valuation of A$1.9 billion has rightfully taken the company into a new orbit, there is plenty of scope for further value accretion for LNG based on the valuation of Houston based Cheniere Energy, Inc. (NYSEMKT:LNG) with a US$15 billion market valuation.

That company is less than six months away from producing its first LNG for export from the 4.5mtpa Train 1 at Sabine Pass, which will mark the first US export of LNG outside Alaska.

With significant milestones ahead and price catalysts, we would expect to see further re-rating of LNG in 2015/16, particularly as more institutional investors switch to a cheaper LNG stock.

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