On the same day that the US Federal Energy Regulatory Commission released its final environmental review of the proposed Magnolia LNG liquefaction and export project in Lake Charles, Louisiana, the company signed a contract to build it.
Magnolia LNG, a subsidiary of Australia's Liquefied Natural Gas Limited, said in a statement Tuesday that it had agreed to a $4.354 billion lump-sum turnkey engineering, procurement and construction (EPC) contract with a joint venture of KBR and South Korea-based SK Engineering & Construction (SKE&C).
A Magnolia LNG spokesman said Tuesday that the company signed the contract Friday following the release of FERC's final environmental impact statement for the Magnolia LNG Lake Charles facility and the associated Kinder Morgan Lake Charles Expansion Project.
The EIS found that although the projects would result in some adverse impacts to wetlands, vegetation and land use, with the implementation of mitigation measures, those harms would be cut to "less-than-significant" levels.
The contract covers the construction of four LNG production trains with design capacity of 2 million mt/year or greater each, two 160,000-cubic-meter full-containment storage tanks, LNG marine and ship-loading facilities, supporting infrastructure, and all required post-final investment decision approvals and licenses, the company said.
Magnolia LNG is likely to reach a final investment decision on the project in the second quarter of 2016, after the US Department of Energy issues a permit for the project to export LNG to countries with which the US does not have a free trade agreement, the spokesman said.
The project already has received DOE approval to export to FTA countries.
With a proposed maximum export capacity of 8 million mt/year, the Magnolia LNG Lake Charles facility is considered a mid-sized liquefaction and export project. The company believes it will be able to build and operate the plant more economically than some of its much larger competitors.
In an interview Tuesday, Greg Pilkinton, Magnolia LNG's EPC commercial director, said the company expects to be able to build and operate the facility for about $500/mt of LNG produced, compared with an average of $800-$900/mt for some of the bigger export projects being built along the US Gulf Coast.
The lower construction and operating costs will help ensure that the company will be able to build and operate the Lake Charles project economically, even in a world of low global energy prices, he said, adding, "I think we're insulated" from the low-price environment, which some analysts have predicted would kill off many projects being proposed to export LNG from North America before they reach the FID stage.
"We can weather the downturn using an alternative technology and innovative use of current technology," Pilkinton said. "It's less expensive to build our facilities and our plant."
Platts Analytics does not include the Magnolia LNG Lake Charles project in its forecast of North American export projects likely to be built through 2020 because the global market is not expected to be able to absorb any additional LNG over the next five-plus years beyond those projects already under construction.
In addition, Platts Analytics estimates that the project would need to secure takeaway contracts for about 7 million mt/year before Magnolia LNG would be able to secure financing for the terminal.
In July, the company announced it had signed its first legally binding offtake agreement with Meridian LNG Holdings for firm capacity rights for up to 2 million mt/year.
"We've announced one long-term offtake agreement," Pilkinton said. "We're speaking to potential customers across the world."
Under the EPC contract, the four-train Magnolia LNG project will have guaranteed production capacity of 7.6 million mt/year. The project is guaranteed to operate at 92% feed gas production efficiency, consuming 8% of incoming gas as fuel.
The KBR/SKE&C joint venture commissioned to build the project has agreed to offer pricing on a reduced (three-train) project scope. The cost for one train, estimated by the joint venture at $630 million, is subject to final confirmation by December 31.
