MCMORAN EXPLORATION Announces MARAD Approval of Their Main Pass Energy Hub LNG Terminal

McMoran Exploration Co. has announced that it has received final approval for its $1 billion liquefied natural gas project off the coast of Louisiana. Final U.S. Maritime Administration (MARAD) approvals were the last major hurdle for the Main Pass Energy Hub. The marine regasification terminal will be built on the offshore salt dome and will cost about $1 billion, once the terminal and necessary pipelines are completed.

The facility, just one of about 45 such proposed facilities throughout the American coastal landscape, will boast a daily capacity of as much as 1.6 billion cubic feet of liquid natural gas a day, with storage capabilities approaching 30 billion cubic feet of LNG in salt caverns. Negotiations concerning capacity rights for the terminal are ongoing.

In the McMoran press release, dated 4 January, the firm said “Unique advantages of the MPEH project include use of existing offshore structures, onsite natural gas cavern storage capabilities, significant logistical savings associated with the offshore location and premium markets available from its eastern Gulf of Mexico location. These advantages would provide LNG suppliers with a highly attractive netback price and offer U.S. natural gas consumers a reliable source of supply. McMoran is continuing discussions with potential LNG suppliers as well as gas marketers and consumers in the United States to develop commercial arrangements for the facilities. Prior to commencing construction of the facility, McMoran expects to enter into commercial arrangements.”

Elsewhere in the US Gulf, the brakes have been firmly applied at other, similar facilities, awaiting sufficient capacity agreements which would allow for profitable operation of those facilities. Although the relatively early approvals from MARAD will provide McMoran with advantages over other Gulf Coast projects, capacity deals are becoming harder to come by in a market which may soon see a glut of potential LNG capacity entering the markets.

If as many as 12 LNG terminals come to fruition in the US Gulf, up to 15 BCF/day could be introduced to the supply equation. This gas will compete with the existing production of 60 to 70 BCF/day, add to it, and eventually, replace some of the expected decline in domestic production. The combined effect of the new LNG on pricing in the domestic markets could very well depress prices significantly over the long term.

In their news release, however, James R. Moffett and Richard C. Adkerson, Co-Chairmen of McMoran, said, “This is a significant development in our efforts to establish a new LNG gateway and natural gas delivery system for the U.S. with substantial onsite natural gas storage. We are positive about the potential for the facility and look forward to establishing commercial arrangements that would provide long-term value to shareholders.”