United States: FERC Authorizes The Elba Liquefaction Project For LNG Exports And The Elba Express Modification Project To Add North-To-South Natural Gas Transportation Capacity

On June 1, 2016, FERC granted the joint application of Elba Liquefaction Company, L.L.C. ("ELC") and Southern LNG Company, L.L.C. ("Southern LNG") requesting authorization to construct and operate new natural gas liquefaction and export facilities at Southern LNG's existing liquefied natural gas ("LNG") terminal located on Elba Island, Chatham County, Georgia (the "Elba Liquefaction Project"). FERC also granted Southern LNG's request to abandon its LNG truck loading facilities at the terminal. In the same order, FERC granted the separate application of Elba Express Company, L.L.C. ("Elba Express") to add north-to-south transportation capacity to the existing Elba Express pipeline system by constructing and operating additional compressors at the existing Hartwell Compressor Station in Hart County, Georgia, and constructing and operating two new compressor stations in Jefferson and Effingham Counties, Georgia (the "Elba Express Modification Project"). Elba Express proposed this expansion in part to enable Elba Express to transport domestic natural gas on a firm basis to the Elba Liquefaction Project.

Southern LNG presently operates an LNG import terminal on Elba Island, five miles downriver from Savannah, Georgia. The terminal imports LNG for storage and revaporization using two LNG carrier berths, five LNG storage tanks, vaporization capacity, sendout facilities, and other associated infrastructure. The terminal's storage capacity is 11.5 Bcf, with 1,755 MMcf/day of peak vaporization and sendout capacity. In their joint application, filed on March 10, 2014, in Docket No. CP14-103-000, Southern LNG and ELC proposed installation of the Elba Liquefaction Project in two phases. Phase I includes installation of three Movable Modular Liquefaction System ("MMLS") units with liquefaction capacity of approximately 0.75 million tons per annum ("MTPA"). Phase II includes installation of up to seven more MMLS units with liquefaction capacity of approximately 1.75 MTPA. The MMLS units would be owned by ELC but operated by Southern LNG. In addition, Southern LNG will add export facilities. Following completion of the Elba Liquefaction project, Southern LNG would have the capacity to provide bi-directional service to allow its customers to either import or export LNG. The estimated cost of these facilities is approximately $395,218,792.

On January 25, 2013, ELC and Shell NA LNG, LLC ("Shell LNG") entered into a Liquefaction Service Agreement, whereby ELC would construct and own the ELC Liquefaction facilities for the receipt and liquefaction of natural gas and delivery of LNG to Shell LNG. ELC will only have one customer, Shell LNG, and does not propose to provide upon access liquefaction services or establish rates, terms or conditions of service that are regulated by the Commission. Also on January 25, 2013, Southern LNG and Shell LNG, an existing shipper of Southern LNG, entered into a Ship Loading Services Precedent Agreement, under which, following the completion of the Elba Liquefaction Project, Southern LNG would provide firm services for the loading of LNG carriers for export. Southern LNG proposes to offer firm and interruptible ship loading services pursuant to Rate Schedules LNG-1, LNG-3 (Firm Services) and LNG-2 (Interruptible Service). Southern LNG notes that, ultimately, it would have the capacity to provide bi-directional service to allow its customers the flexibility to respond to applicable market conditions by either importing or exporting LNG.

Elba Express owns and operates a 189-mile pipeline, the Elba Express pipeline, from Port Wentworth, Georgia, to interconnections with Transco's pipeline system in Hart County, Georgia and Anderson County, South Carolina. Elba Express currently provides 945 MMcf/d of transportation capacity from the Elba Island terminal to the Transco interconnections. In addition, the Commission previously authorized Elba Express to construct the Hartwell Compressor Station in Hart County, Georgia, which enables gas on the Elba Express pipeline to flow from north to south. Elba Express also owns and undivided interest in the Twin 30s Pipeline, which consists of two parallel 30-inch-diameter pipelines that presently transport vaporized LNG from Elba Island to Port Wentworth, Georgia.

Elba Express proposes in a Phase I to modify the Twin 30s Pipeline so that the two parallel pipelines are segregated from each other, with one flowing from Port Wentworth to the liquefaction facilities to be built at the Elba Island terminal, while the second continues to flow from the Elba Island terminal to Port Wentworth. Elba Express also proposes to construct additional compression facilities at the Hartwell Compressor Station, two new compressor stations – the Jefferson County [Georgia] Compressor Station and the Rincon Compressor Station in Effingham County, Georgia, and metering facilities. In Phase II, Elba Express would install one additional 15,900 hp gas turbine compressor unit at the Hartwell Compressor Station. In Phase III, Elba Express would install a further additional 15,900 hp gas turbine compressor and rewheel the existing 10,000 hp gas turbine at Hartwell Compressor Station, and additional approximately 15,000 hp compressor units at the Jefferson County and Rincon Compressor Stations.

Elba Express estimates that the total cost of all phases will be approximately $344 million. Elba Express proposed to charge its existing system rates for firm transportation service and for fuel for the project. All shippers have agreed to pay negotiated rates.

In its June 1, 2016 order, the Commission granted the requests for authorization to proceed with the Elba Liquefaction Project and the Elba Express Modification Project, subject to the conditions set out in the order. The Commission found that Elba Express's proposal to charge its existing rates would not result in subsidization of the expansion by any existing customer since no costs of the expansion were presently reflected in Elba Express's currently effective rates and because project revenues would exceed project costs by approximately $16 million in the first three years of operation. In analyzing and preventing subsidization, the Commission refused to combine analysis of reservation rate impact with that of fuel use impact, requiring that the two analyses be separate, and ordered Elba Express to separately identify the incremental fuel associated with its project and to charge an incremental fuel rate for the project. The Commission also found no degradation of service to existing Elba Express pipeline customers.

The Commission found that Southern LNG's proposed cost of service, allocation, and rate design used to develop its Rate Schedules LNG-1, LNG-2 and LNG-3 reasonably reflected Commission policy except as noted in the June 1, 2016 order. The principle exception noted by the Commission was that the interruptible rate had not been calculated using a 100% load factor basis. The Commission directed Southern LNG to recalculate the interruptible rate using a 100% load factor basis.

In granting the requested authorizations, the Commission reviewed in detail and rejected various objections raised by environmental groups and others to the environmental assessment ("EA") prepared by Commission Staff.

A copy of the order is available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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