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Liquefied Natural Gas signs tolling agreement with AES Group for Magnolia

Last updated: 16:58 06 Mar 2014 EST, First published: 17:58 06 Mar 2014 EST

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Liquefied Natural Gas (ASX: LNG) has executed a non‐binding Tolling Agreement Term Sheet with AES Latin American Development that supports the fourth processing train at its Magnolia Liquefied Natural Gas project in Louisiana.

The agreement is for LNG production capacity rights of between 800,000 tonnes per annum and 1 million tonnes per annum from MLNG’s proposed 8Mtpa plant.

The parties have agreed to work together to finalise a legally binding tolling agreement by 30 September 2014.

AES is a wholly owned subsidiary of The AES Corporation Group (NYSE: AES), a US$10.16 billion Fortune 200 global power company with extensive investment in power generation throughout the Caribbean and Latin America.

“This is another significant step for the MLNG Project and demonstrates a high level of confidence that the project will achieve its goal to commence construction next year,” managing director Maurice Brand said.

Brand added that significant progress had been made on the negotiation of the existing three legally binding Tolling Agreements and that there is also likely to be an Inter‐Shipper Coordination Agreement to govern the long term relationship between the potential five LNG Tolling Parties.

“These are complex agreements which span a period of over 20 years and cover fixed payment obligations to MLNG of around US$4 billion per LNG train,” he said.

“AES will now participate in the negotiation and coordination of these agreements with the Company targeting to sign legally binding Tolling Agreement for the MLNG Project’s initial 2 LNG trains (totalling 4Mtpa nameplate capacity) in the first half of 2014.”

AES Agreement

The Agreement with AES is structured and contains similar terms to the Tolling Agreement Term Sheets already signed with Brightshore Overseas Limited (subsidiary of the Gunvor Group), Gas Natural SDG, S.A (subsidiary of the Gas Natural Fenosa Group), and LNG Holdings Corp., (owned by a fund managed by West Face Capital Inc).

It details the key terms to be included in a legally binding tolling agreement.

Notably, the proposed key commercial terms support the economics of proceeding with a fourth LNG train, with the Company confident that it will be able to enter into a Tolling Agreement for the remaining capacity of the fourth LNG train to bring the MLNG Project to its total targeted nameplate capacity of 8Mtpa.

AES’ investments are located in countries such as the Dominican Republic, Chile, El Salvador, and Colombia, all of which have Free Trade Agreements with the United States of America.

Magnolia LNG

MLNG is planned as a 8 million tonne per annum (Mtpa) liquefied natural gas export project comprising of four liquefaction trains, each capable of producing up to 2Mtpa of LNG (1.7Mtpa firm), that is fast-tracked for a robust Final Investment Decision in mid-2015.

This will use LNG Limited’s OSMR® LNG process technology with the company adopting a tolling business model whereby Magnolia LNG will provide liquefaction, storage and ship loading facilities to LNG buyers who pay a monthly fixed capacity fee, plus all LNG plant operating and maintenance costs.

The LNG buyers are also responsible for the supply and transportation of gas to the project site.

LNG Limited has also executed a MoU with SK Engineering and Construction to negotiate Technical Services Agreement to undertake the necessary activities to conclude a bankable Fixed Price engineering, procurement and construction Contract.

SKEC has already estimated capital costs for an initial two train project at US$1.57 billion.

MLNG is well positioned to provide access for the loading of LNG onto LNG ships for exports, LNG Barges for marine distribution to mini‐LNG refuelling stations as well as LNG Trucks for potential road distribution to LNG refuelling stations within Louisiana and other surrounding U.S. states.

In addition, the site is located within 3 miles of three major underutilised pipelines including the Kinder Morgan Louisiana Gas Pipeline that is located on site.

This enables the project to take advantage of 11 major gas transportation corridors that mitigates infrastructure risks and allows it to tap the country’s massive shale gas production.

Stonepeak Partners is earning an estimated 50% stake in MLNG return for contributing the full US$660 million project equity requirement.

This represents 30% of the total capital costs with LNG Limited planning to finance the remaining 70% with project debt.

To that end, the company has appointed BNP Paribas Bank as its project finance advisor.

It will also work with Stonepeak and New York based EAS Advisors, which had been instrumental in LNG lining up funding and partners for the project, to secure the proposed project debt financing for the Stage 1 development.

Analysis

Shares in Liquefied Natural Gas Limited should trade higher today on the execution of a non-binding Tolling Agreement Term Sheet with AES Latin American Development, a wholly owned subsidiary of The AES Corporation Group (NYSE: AES), a US$10.16 billion Fortune 200 global power company with extensive investment in power generation throughout the Caribbean and Latin America.

Notably, this supports the economics of proceeding with the fourth processing train at its proposed four train Magnolia Liquefied Natural Gas project in Louisiana that will have nameplate capacity of 2 million tonnes of LNG per annum (2Mtpa per train).

That the company is confident of entering into a Tolling Agreement for the remaining capacity of the fourth LNG train adds to the likelihood that it will proceed with the full project.

There is considerable news flow ahead with work now focused on signing legally binding Tolling Agreements covering the first two processing trains – totalling 4Mtpa nameplate capacity – in the first half of 2014.

Proactive Investors recently undertook a research report on LNG Limited when the share price was $0.295. We estimated a target of $2.25 within 18 months and the latest tolling agreement is just another tick in the box.

 

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.

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