Freeport LNG to proceed with train 3

OREANDA-NEWS. April 29, 2015. The Freeport LNG export project in Texas today made a positive final investment decision (FID) on its planned third liquefaction train after closing on \\$4.56bn in debt financing.

Freeport, located about 70 miles (113km) southwest of Houston, is among four LNG export terminals being built in the US. It made an FID on its first two trains in November.

"We are pleased to finally have the full three-train project under construction," Freeport LNG chief executive and majority owner Michael Smith said.

The first train is expected to start production in early 2018 and begin commercial operations by September 2018. Train 2 is expected to start operating by February 2019 and train 3 by August 2019.

The three trains will have combined contractually guaranteed capacity of 13.2mn t/yr, equivalent to 1.8 Bcf/d (51mn m?/d) of gas, and peak capacity of 15.4mn t/yr. The guaranteed capacity has been sold to various customers under 20-year take-or-pay contracts, so Freeport LNG will have a guaranteed income regardless of how much LNG the customers take.

The estimated cost of the project is \\$15.5bn, with \\$12.5bn for construction and \\$3bn for financing, acquisition and contingency costs. Freeport previously pegged the total cost at \\$14.2bn.

The project is being built by a venture of CB&I, Zachry Industrial and Chiyoda.

Freeport will retain 100pc ownership of train 3. A syndicate of 27 banks is providing a combined \\$3.64bn in senior debt financing for the train, and about \\$925mn in equity financing is being provided through mezzanine debt financing.

South Korean utility SK E&S and Japan's Toshiba each signed contracts for 2.2mn t/yr, starting when train 3 comes on line.

Japanese utilities Osaka Gas and Chubu Electric each own 25pc of train 1 for each investing \\$1.2bn, and IFM Investors owns undisclosed equity in train 2 for investing \\$1.3bn in that train.

Osaka Gas and Chubu Electric Power agreed to buy 2.2mn t/yr of capacity each, starting when the first train comes on line, and the UK's BP contracted for 4.4mn t/yr of capacity, beginning when the second train starts operating.

The US Department of Energy has authorized Freeport to export as much as a gas equivalent of 2.8 Bcf/d to countries that have free trade agreements (FTAs) with the US and up to 1.8 Bcf/d to countries that do not have such agreements.

Although most major LNG consuming nations, including Japan, do not have FTAs with the US, Freeport expects to be able to export peak production of up to 2.1 Bcf/d because South Korea does have an FTA with the US. Since the capacity contracted to SK E&S is equivalent to 300mn cf/d of gas, Freeport would be able to export the remaining peak capacity of 1.8 Bcf/d to any country.