FERC OKs offshore pipeline abandonment

Market: Natural gas
28/09/16

The US Federal Energy Regulatory Commission (FERC) has authorized the abandonment of the subsea Grand Chenier pipeline system and an associated handling facility in Cameron parish, Louisiana, to allow the system to carry onshore gas to the planned floating Avocet LNG export project.

Avocet, which would be about 40 miles (64km) offshore Louisiana, is the second Gulf of Mexico deepwater LNG export project being developed by Asian-US venture Fairwood Peninsula Energy. The other project, Delfin LNG, would use the existing U-T Offshore System and High Island Offshore System pipelines.

Reversing flow on existing subsea pipelines and mooring LNG production and storage vessels along the pipelines could make Fairwood's projects cheaper than proposed onshore US LNG projects. That potentially could give Avocet and Delfin advantages in securing customers in the current oversupplied LNG market.

Delfin, which would be located about 46 miles offshore Cameron parish, Louisiana, has applied to the US Maritime Administration and US Coast Guard for construction authorization. It is scheduled to come on line in the third quarter of 2019 and could have up to four liquefaction vessels, each with capacity of 3mn t/yr, equivalent to 385mn cf/d (10.9mn m³/d of gas). Delfin has signed preliminary liquefaction capacity deals with Brazil's BTG Pactual Commodities and Lithuania's state-owned Litgas.

FERC's order approving the abandonment Grand Chenier said Avocet will be developed after Delfin, but it did not provide additional details on the timeline. Avocet has not applied for construction authorization and Fairwood did not reply to an Argus request for comment.

The roughly 40-mile Grand Chenier system was built decades ago to bring Gulf of Mexico gas to the US, but the system is incurring losses because it has been significantly underused in recent years. FERC said the system will be abandoned by sale to Avocet. TransCanada subsidiary TC Offshore in December signed a deal to sell the system to Avocet, but a closing date has not been publicly released.

TransCanada in March sold the system to Kinetica Partners. Kinetica also did not reply to an Argus request for comment about the planned sale to Avocet.

The 30-inch (76cm) diameter Grand Chenier system in 2015 flowed an average of 46mn cf/d, less than 7pc of designed capacity of 723mn cf/d.

Some gas producers that still ship volumes along Grand Chenier asked FERC to not authorize the abandonment, saying their production fields would not be able to access other subsea pipeline systems to the US. Those shippers included ExxonMobil and Apache.

FERC approved the abandonment because all the shippers have declined to sign firm transportation contracts on Grand Chenier and alternative access points are planned. The shippers have opted for interruptible contracts on a month-to-month basis, allowing them to only pay for volumes they actually ship. In addition, about 85pc of the gas that flows along Grand Chenier will have access to the US via a planned additional connection with the Kinetica Energy Express pipeline at the West Cameron block 167 platform.

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