Kinder Morgan is awaiting a legal decision about whether its remaining customer at its Gulf LNG regasification facility will be allowed to pull out of its long-term capacity deal, according to a July 27 regulatory filing.
At issue is the customer's claims that changes in the US natural gas market "frustrated the essential purpose" of the import facility and that the operator breached their agreement by proposing to convert the Mississippi terminal to handle exports.
The dispute reflects the market shift that occurred in the years since the US shale revolution unlocked vast reserves of cheap natural gas. The US turned its attention to being a major exporter, effectively idling many import terminals, especially on the Gulf Coast, and eliminating the demand for customers to ship and store gas there.
Kinder Morgan had hoped to continue to collect reservation fees from its regas contracts at Gulf LNG, as it worked to develop the export project. But earlier this year, before the coronavirus pandemic weakened global LNG demand, Kinder Morgan said construction of the export project was unlikely to be sanctioned in the near term.
Italy's Eni won an arbitration panel ruling in June 2018 that it could terminate its capacity deal tied to the Gulf LNG unloading, storage, and regasification facility that was not scheduled to expire until 2031. As part of the ruling, Eni was required to pay compensation to Kinder Morgan, although that payment still resulted in a loss for the operator.
Now, Kinder Morgan is fighting a similar claim Gulf LNG's remaining regas customer, Angola LNG Supply Services, filed in December 2019. Besides wanting to terminate its contract, Angola is seeking an arbitration panel's order that Gulf LNG should reimburse it for all reservation charges and operating fees that it paid over the last 3 ½ years, plus interest.
A final decision by the panel is expected by next summer, Kinder Morgan said in a Securities and Exchange Commission filing.
Eni, meanwhile, is trying to recoup from Kinder Morgan some or all of the money it was ordered to pay the company in their arbitration case. A court hearing involving that effort is scheduled for Sept. 9.
Market concerns
As for the export project at Gulf LNG, Kinder Morgan's efforts, while ongoing, have been "slowed by uncertainties in the current LNG market," spokeswoman Katherine Hill said in an e-mail responding to questions.
Those market uncertainties prompted Shell in March to pull out of a joint venture with Energy Transfer to develop an export terminal at the site of the Lake Charles LNG regas facility in Louisiana. Energy Transfer has said it plans to move forward on its own.
Shell, through its acquisition of BG, is the sole customer for the existing regasification facility at the Lake Charles site, and it is obligated to pay reservation fees for the capacity regardless of whether it actually utilizes it, under an agreement that terminates in 2030. The facility hasn't imported any LNG since March 2012, according to the US Department of Energy records. Energy Transfer recently said that Lake Charles LNG and BG LNG are negotiating an amended regasification services agreement to replace the existing one. Like at Gulf LNG, a final investment decision has not yet been made on the Lake Charles LNG export project.
