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Liquefied Natural Gas Signs First Binding Magnolia Liquefaction Deal

Liquefied Natural Gas Limited (ASX:LNG, OTC ADR:LNGLY) has reached a major milestone with signing of its first legally binding liquefaction tolling agreement with Meridian LNG Holdings Corporation at Magnolia LNG in Louisiana.

This covers firm capacity rights of up to 2 million tonnes per annum of liquefied natural gas for 20 years.

Magnolia LNG project, located on the Calcasieu shipping channel in the Lake Charles District, 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) using its wholly owned OSMR® LNG process technology.

Earlier this week, LNG Ltd received the Draft Environmental Impact Statement from the United States Federal Energy Regulatory Commission (FERC).

Rick Cape, chief commercial officer of Magnolia LNG, said:

"We have been working with Meridian LNG since late 2013 and are delighted to have completed our first binding liquefaction tolling agreement. This is another significant milestone for Magnolia toward fully subscribing our 8Mtpa project."

Maurice Brand, LNG Ltd managing director, added:

"Financial close for the Magnolia project is planned for first quarter 2016. The Magnolia project remains on schedule to provide first LNG in December 2018 with full LNG supply of 8Mtpa completed in 2019.

"In light of market interest in the Magnolia LNG project, we have asked the KBR-SK Joint Venture (KSJV) to provide a fixed-price turnkey EPC contract price on the full 8Mtpa project, rather than just the original Phase I project of 4Mtpa.

"The KSJV pricing will be firm for a six-month period from signing, aligning with our targeted first quarter 2016 financial close.

"Our marketing efforts continue to progress and shareholders should expect an update regarding status of other binding contracts to coincide with the KSJV EPC announcement and/or later in the last quarter of 2015."

Roger Whelan, Meridian LNG chief executive officer, noted:

"Meridian LNG is very pleased to complete our LTA with Magnolia and looks forward to participating alongside other offtake participants in this impressive and innovative LNG export project.

"This agreement marks a critical step towards fulfilling our commitment to deliver up to 750 million standard cubic feet a day of natural gas to E.ON Global Commodities, for 20 years from 2019, via our UK Port Meridian terminal."

Liquefaction Tolling Agreement

Under the liquefaction tolling agreement, Magnolia LNG will provide liquefaction services to Meridian LNG over the term of the contract in return for monthly capacity payments

Meridian LNG is responsible for procurement and delivery of feed gas to the liquefaction plant and for arranging all LNG shipping required to transport the LNG from the liquefaction plant to its customers.

It intends to deliver the LNG to Port Meridian, its Höegh LNG operated floating re-gasification terminal in the UK with the gas delivered to E.ON Global Commodities (NASDAQ:EGC) under the 20-year gas sales agreement (GSA) executed and announced by Meridian LNG on 23rd April 2015.

Key terms of the LTA include:

- Initial term of 20 years, with option to extend by a further 5 years;
- Firm annual capacity of 1.7 mtpa with a further 0.3 mtpa to be offered at Magnolia's discretion; and
- Conditions precedent, including that Magnolia achieves financial close no later than 30 June 2016.

Analysis

Signing its first binding liquefaction tolling agreement is a major milestone for Liquefied Natural Gas Ltd as it draws towards financial close for Magnolia LNG in the first quarter of 2016.

With further binding contracts expected to coincide with the KBR-SK Joint Venture engineering procurement contract announcement in 4Q 2015, we believe a further re-rating of LNG in 2015/16 in on the cards.

This is based on the market valuation of Houston based Cheniere Energy, Inc. (NYSEMKT:LNG), a US$16 billion market cap. which is less than six months away from producing its first LNG for export from the 4.5mtpa Train 1 at Sabine Pass.

It is understood that one tolling agreement is already very advanced while another four are movng forwards.

Newsflow is also expected soon for the Bear Head LNG Project in Canada.

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