Energy Transfer has dropped plans to build an LNG plant in Louisiana to focus on natural gas pipelines, which are a more lucrative business.
The decision follows reports that Energy Transfer was planning to make the final investment decision on the Lake Charles LNG project by the end of this year. Lake Charles LNG was fully permitted, it was going to use existing infrastructure, and was expected to benefit from an abundant natural gas supply through existing connections to the Henry Hub and connectivity to Energy Transfer’s vast network of natural gas pipelines, the company said earlier this year.
On top of that, Energy Transfer had struck several offtake deals for future supply from Lake Charles, including with Chevron, which had committed to 3 million tons of LNG from the facility, and Japan’s Kyushu Electric Power Company, for 1 million tons of LNG.
However, Energy Transfer needed more partners to share the financial load with, as noted during its third-quarter earnings call. At the time, Energy Transfer said it was looking for buyers for up to 80% of the project’s equity before the final investment decision was made.
“We are in advanced discussions with MidOcean Energy related to its participation as a 30% equity owner of Lake Charles LNG with a commensurate percentage of LNG offtake,” co-chief executive Thomas Long reported during the company’s earnings call in early November. “We’re in discussions with other parties for the remaining equity we intend to sell in order to reduce Energy Transfer’s equity interest to 20%.”
The decision to drop the project reflects a growing fear in the industry that there is too much new LNG capacity coming in the near future, which would pressure prices and squeeze profitability. Energy Transfer was also challenged by rising costs, which is quite usual for LNG projects. Reuters quoted one unnamed source as saying that Energy Transfer’s management had also gotten nervous about venturing into a new space, LNG, when the company was, above all, a pipeline player.
By Irina Slav for Oilprice.com
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