Just Approved: Why America’s First Floating LNG Terminal Is a Big Deal

David Fessler By David Fessler, Energy and Infrastructure Strategist, The Oxford Club

Oil & Gas

It’s no secret that the U.S. produces a lot of natural gas. We have the revolution in shale gas extraction to thank for that.

Just look at how U.S. shale production has increased over the last decade. The Marcellus Shale, much of which is located in my state of Pennsylvania, is now responsible for more than one-third of all U.S. shale gas production…

In fact, so much natural gas is being produced that the U.S. is now able to sell it internationally. We’ve been exporting it for 16 months now.

Several new land-based liquefied natural gas (LNG) export terminals have been approved by the Department of Energy and are now in various stages of construction.

But there are drawbacks to a land-based terminal: It needs to be adjacent to a deepwater port, and the port has to be able to handle large LNG carriers.

But the project I want to show you today is doing something completely different. It needs almost no land.

And its proposed deepwater port is already located in deep water…

How is that possible? Glad you asked.

America’s First Floating LNG Terminal

The company developing the first floating liquefied natural gas vessels (FLNGV) in North America is Delfin LNG.

Here’s how it works: Natural gas will travel from the U.S. mainland to Delfin’s deepwater port in the Gulf of Mexico, about 50 miles off the coast of Louisiana. The port will have separate berths for up to four FLNGVs.

Each FLNGV will cool incoming natural gas to -260 degrees Fahrenheit. At that point, the gas will liquefy to become LNG. Each FLNGV will be capable of producing between 3 million and 3.3 million tons per annum of natural gas.

This map shows the path the natural gas will take from the coast to the deepwater port…

The beauty of the project is that it requires very little additional infrastructure investment.

Back in 2014, Delfin purchased the UTOS pipeline from Enbridge Inc. (NYSE: ENB). The UTOS pipeline is an existing subsea pipeline that’s 30 miles long and 42 inches in diameter. It runs from Cameron Parish, Louisiana, to West Cameron Block 167.

The pipeline has interconnections with four major onshore natural gas suppliers, which gives Delfin access to a diverse selection of pipeline-quality natural gas.

Delfin will also lease the HIOS pipeline. This 66-mile-long pipeline will connect the West Cameron Block 167,where the UTOS pipeline ends, to the four FLNGVs.

The Investment Angle

The good news for Delfin is that on June 1, it received approval from the Department of Energy to export LNG to non-free trade agreement countries.

The bad news for investors is that Delfin LNG is privately owned…

But there’s another approach you can take…

On June 21, Delfin signed an agreement with Golar LNG Limited (Nasdaq: GLNG) that will make it easier for Delfin to obtain financing, start construction, market and operate its new FLNG export terminal.

I like Golar because it has 40 years of experience in the LNG business. It already owns and operates seven specialized vessels that store and regasify LNG.

Plus, Golar is getting ready to roll out its own FLNGV, the Hilli, which has been converted from an old LNG carrier and is expected to set sail from the Keppel, Singapore, shipyard in the third quarter of 2017. Shortly after, Golar will turn a second LNG carrier, the Gandria, into a FLNGV.

The company is also developing its next-generation floating liquefaction platform, the Mark II, which will produce the cheapest LNG of any liquefaction plant in North America. Deliveries will begin in 2021 or early 2022.

The Future Is Now

FLNGVs are much more compact than land-based LNG liquefaction plants are. They are far cheaper, and Delfin can build one in less than three years.

Natural gas-fired power generators are fast becoming the preferred method to generate power on the way to 100% renewable energy.

Golar and Delfin are going to be the cheapest LNG producers in just a few years. Now would be a great time to add a few shares of Golar to your portfolio.

Good investing,

Dave