2014 houston marine insurance seminar: lng development & pitfalls on the regulatory side monica...
TRANSCRIPT
2014 Houston Marine Insurance Seminar:
LNG Development & Pitfalls on the Regulatory Side
Monica HwangSeptember 23. 2014
Agenda
• Overview of LNG Chain/ Commercial Structures
• Regulatory Approvals for US LNG Export Projects
• Ship-Shore Liability
International LNG Industry
Source: BP Statistical Review of World Energy 2014
LNG Importing Countries
Source: GIIGNL: The LNG Industry in 2013
LNG Exporting Countries
Source: GIIGNL: The LNG Industry in 2013
LNG Chain
Source: Osaka Gas website
LNG Chain – Commercial Development
• Host government contract• Higher infrastructure costs• Based on long-term contract • Dependent on buyer’s creditworthiness
LNG Capital Investment Costs
LNG Chain – Development Stages
Oil
Gas
Upstream Discovery
Financing ConstructionOperation and
Marketing
Upstream Discovery
Marketing Financing Construction/Operations
LNG Plant Costs
Source: Waterborne Energy
LNG Chain – Commercial Structure Upstream E&P Liquefaction Shipping Import/Regas
Non-US -Stranded gas reserves-High risk/ capital costs-NOC/IOC
-High capital costs/ project financing is typical-NOC/IOC
-Charter/ own-Buyer or Seller
-Low capital costs (as compared to liquefaction)-Buyer/ Merchant Terminals
LNG Chain – Commercial Structure Upstream E&P Liquefaction Shipping Import/Regas
Non-US -Stranded gas reserves-High risk/ capital costs-NOC/IOC
-High capital costs/ project financing is typical-NOC/IOC
-Charter/ own-Buyer or Seller
-Low capital costs (as compared to liquefaction)-Buyer/ Merchant Terminals
US -Liquid gas market-Producers/ gas marketers
-High capital costs/ project financing is typical-Merchant Terminals
-Charter/ own-Buyer or Seller
-Low capital costs (as compared to liquefaction)-Buyer/ Merchant Terminals
US Structures – Tolling Model• Dominant model for proposed US projects – e.g.,
Freeport, Cameron, Cove Point, Jordan Cove, etc.
Project Developer
Tolling Customer
Tolling Agreement
Gas Seller (Producer/
Gas Marketer)
Gas Sales Agreement
LNG Sales Agreement
LNG Buyer
LNG Project
US Structures – Sales-and-Purchase Agreement (SPA) Model• E.g., Cheniere
Project Developer/ LNG
Seller
Gas Seller (Producer/
Gas Marketer)
Gas Sales Agreement
LNG Sales Agreement
LNG Buyer
LNG Project
Key Regulatory Approvals for US LNG Export Project• Export LNG – Department of Energy (DOE)• Site, construct and operate the LNG export facilities –
Federal Energy Regulatory Commission (FERC) or Dept. of Transportation – Maritime Administration (MARAD)
Section 3 of Natural Gas Act - DOE
[N]o person shall export any natural gas from the United States to a foreign country or import any natural gas from a foreign country without first having secured an order of the Commission authorizing it to do so. The Commission shall issue such order upon application, unless, after opportunity for hearing, it finds that the proposed exportation or importation will not be consistent with the public interest….
Section 3 of Natural Gas Act - DOE
[T]he importation of the natural gas…, or the exportation of natural gas to a nation with which there is in effect a free trade agreement requiring national treatment for trade in natural gas, shall be deemed to be consistent with the public interest, and applications for such importation or exportation shall be granted without modification or delay.
FTA countries include: Australia, Bahrain, Colombia, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Chile, Morocco, Canada, Mexico, Oman, Peru, Singapore, Republic of Korea, Jordan, and Panama.
Application for DOE Export Authorization• FTA vs. non-FTA• Blanket (2 years) vs. long-term• Export is for applicant itself or as agent for others• Processing Queue
• In Dec. 2012, DOE established an “order of precedence” for review of non-FTA applications based on date that a project has received approval to commence FERC pre-filing process.
• In 2014, DOE abandoned this “order of precedence” and will only issue a non-FTA permit after NEPA environmental review is completed.
Terms of DOE Long-Term Export Authorizations• Commercial export must begin within 7 years from
conditional approval date• 20 year export term from date of commercial export• Separate blanket authorization can be used for
commissioning volumes • Additional 3 years may be used for make-up volumes
Section 3 of Natural Gas Act - FERC• The Commission shall have the exclusive authority to
approve or deny an application for the siting, construction, expansion, or operation of an LNG terminal.
• “LNG terminal” includes all natural gas facilities located onshore or in State waters that are used to receive, unload, load, store, transport, gasify, liquefy, or process natural gas that is imported to the United States from a foreign country, exported to a foreign country from the United States, or transported in interstate commerce by waterborne vessel, but does not include [vessels or interstate pipelines].
FERC – Regulatory Developments• A proposed project in Hawaii to receive LNG delivered
from the Continental US in ISO containers and deliver the regasified LNG into the distribution pipeline system falls outside of definition of “LNG terminal” under Section 3 of the Natural Gas Act. The Gas Company, LLC (FERC Docket No. CP12-498).
• A small-scale LNG project that liquefies Marcellus Shale production and delivers such LNG to trucks falls outside of FERC’s jurisdiction. Gulf Oil Limited Partnership (FERC Docket No. CP14-132).
FERC – Regulatory Developments• FERC’s jurisdiction does not apply to proposed facilities
to receive Canadian LNG for subsequent distribution by truck or train or to a liquefaction unit in Louisiana that liquefies domestic production for delivery to water vessel and trucks and trains as fuel. Shell U.S. Gas & Power, LLC (FERC Docket No. RP14-52).
• FERC’s jurisdiction does not apply to LNG facilities that are >150 miles inland and which will not receive or deliver LNG by waterborne vessel for subsequent interstate transportation or the sale of LNG delivered to end users by truck, rail, and other non-pipeline modes of transportation. Pivotal LNG (FERC Docket No. RP14-732).
Deepwater Ports Act - MARAD• No person may engage in the ownership, construction, or
operation of a deepwater port except in accordance with a license issued pursuant to this chapter.
• “deepwater port”— means any fixed or floating manmade structure other than a vessel, or any group of such structures, that are located beyond State seaward boundaries and that are used or intended for use as a port or terminal for the transportation, storage, or further handling of oil or natural gas for transportation to or from any State…
Ship-Shore Liabilities• Vessel owner’s liability in a marine casualty event may
be subject to limitations by law.• For example, the Limitation of Vessel Owner’s Liability
Act (46 U.S.C. §§ 181 et seq.) limits a vessel owner’s liability in a marine casualty event to the value of his vessel and cargo determined upon termination of the voyage on which the casualty occurred.
Port Liability Agreement• Many LNG terminals require the vessel owner to execute
an agreement governing allocation of liabilities as between the terminal and the vessel.
• aka Conditions of Use, Risk Allocation Agreement, Ship-Shore Liability Agreement
• Typically fault-based allocation of liability• Express waiver of any limitation of liabilities• Require vessel to maintain certain insurance coverages
