Freeport LNG

Overview

Freeport LNG Development L.P. (Freeport LNG) owns and operates a liquefied natural gas (LNG) receiving and regasification terminal on the Gulf Coast of Texas near Houston. The facility has a potential capacity of 1.75 billion cubic feet per day, two 160,000 cubic meter LNG storage tanks and one marine dock capable of handling the largest LNG vessels under construction and in operation today. Reaching commercial operation in June 2008, the facility has tolling agreements with three investment-grade parties with volume weighted average contract terms greater than 19 years.

Performance

This performance was despite a reduction of forecast natural gas prices, which impacts tolling agreement revenue, and the suspension of a previously proposed natural gas liquids project which resulted in a decrease in the facility’s utilisation assumption. In early 2011, Freeport LNG resolved a contract interpretation dispute with one of its long term customers resulting in higher forecast fixed cash flows. In conjunction with the settlement and market dynamics, Freeport LNG management decided to progress a natural gas liquefaction and export project, instead of its natural gas liquids extraction project.

Operationally, Freeport LNG has performed well as the terminal facility provides customers with import and re-export services. These services have been provided to customers outside their existing contracts and partially offset current under utilisation of the import and regasification services.

In November 2010, Freeport LNG and Macquarie Energy, the North American energy marketing and trading arm of Macquarie Group, announced an agreement to jointly develop and market liquefaction capacity from Freeport LNG. Under the agreement Macquarie funds a significant portion of the development costs and receives an option to enter into contracts for a portion of the facility’s capacity. Freeport LNG is seeking Federal Energy Regulatory Commission approval to build the facility with the aim to commence operations during 2015–2017 for up to 1.8 billion cubic feet per day from the natural gas liquefaction and export facility.

In addition, Freeport LNG has already received authorisation to export LNG to Free Trade countries and expects to receive approval to export to Non Free Trade countries by no later than 2012. This proposed facility may provide significant performance upside for Freeport LNG, which is not included in the current valuation.

Outlook

Despite a reduction in the forecasts of terminal utilisation and US natural gas prices, Freeport LNG is expected to provide relatively predictable cash flows and returns from the existing re-gas terminal.

Aside from ensuring that the existing terminal maintains reliability and complies with its existing contracts, management is focused on developing the natural gas liquefaction and export project. Following the natural disasters in Japan and the fallout from the Fukushima nuclear facility, global LNG markets have tightened, boosting demand for additional LNG supplies. These developments are aiding in the marketing and potential contracting of Freeport LNG’s natural gas liquefaction and export project.

Freeport LNG
Financial and operational performance

For more information please visit the Freeport LNG website