In Turnaround, Jordan Cove LNG Secures First Customer

Image courtesy Jordan Cove LNG

By MarEx 2016-03-22 20:00:47

In a surprise turnaround, Canadian natural gas midstream firm Veresen announced Tuesday that it has negotiated a long-term commitment for the purchase of LNG from its proposed Jordan Cove liquefaction facility at Coos Bay, Oregon. 

Just 11 days ago, the Federal Energy Regulatory Commission (FERC) denied a Veresen subsidiary the required permit to build a pipeline for the proposed Jordan Cove LNG trains, citing an absence of demonstrated demand - and specifically the lack of any signed precedent agreements or other contracts for the sale of Jordan Cove's product.

In its decision, FERC left the door open to a reconsideration of the pipeline permit if Jordan Cove and Veresen subsidiary Pacific Connector could show a market for their LNG.

Veresen said Tuesday that it has reached a "preliminary agreement" with JERA, a recently formed joint venture of Japanese utilities TEPCO and Chubu Electric, for the sale of one quarter of Jordan Cove’s six mtpa LNG capacity, over a 20-year period. The agreement is conditional on regulatory approvals and on the finalization of a detailed tolling agreement. 

TEPCO and Chubu created JERA in April 2015; upon the integration of their fuel procurement businesses, expected to occur in July, Jera will be the world’s largest purchaser of liquefied natural gas, with joint buys totaling to about 40 mtpa. 

“This agreement signals strong market support for the Jordan Cove LNG project from the world’s largest LNG buyer,” said Don Althoff, the firm's president and CEO.

But analysts cautioned that even with the newly announced purchase agreement, Veresen has a way to go in convincing FERC to grant permission to build. 

“This agreement only covers a quarter of the capacity of the project, so there is still a great deal of commitments that are likely needed before the company can show sufficient commercial support to justify FERC changing its ruling,” said Chris Cox, an analyst for Raymond James, adding that demand was not the only issue FERC cited in its decision. 

Veresen and competing West Coast terminal proposals -  Woodfibre LNG, Oregon LNG and Pacific NorthWest LNG - all face market headwinds. North American natural gas supplies are relatively abundant and pricing is low at roughly $3 per mmbtu, but the Asian LNG market has softened, dropping from highs of nearly $20 per mmbtu in early 2014 to rates in the $6 to $7 range (Japan spot import pricing), causing some to question the economic viability of West Coast LNG facilities for the near future. As early as April of last year, Moody's forecast the cancelation of the majority of planned U.S. LNG export facilities due to low prices. 

Given regulatory hurdles and construction scheduling, Jordan Cove would not come online for some time, and market conditions could change by the 2020s. But the industry expects a growth spurt in LNG capacity over at least the next five years, with little price recovery in the forecast.