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Interview

Greg Vesey – Managing Director & CEO, LNGL, Australia

Bringing dynamic mid-scale LNG projects to the international energy market, Australian LNG Limited (LNGL), has positioned itself as an innovative global player in LNG infrastructure investment. MD and CEO, Greg Vesey, details some of the company’s exciting ventures in North America and shares the main features of their unique in-house technology.

Could you please present LNGL’s business model and provide us with a brief overview of its current project portfolio?

LNGL is an Australian public company based in Perth, Western Australia with offices in Houston, Texas; Lake Charles, Louisiana; and Halifax, Nova Scotia. Our business strategy is to bring to the international energy market a concept of mid-scale LNG projects based on our patented optimized single mixed refrigerant (OSMR®) liquefaction process technology. We are currently developing LNG export terminal projects in the United States, Canada, and Australia, having a combined aggregate design production capacity of nearly 20 million metric tons per year (mtpa). While we consider the geographic distribution of our projects a competitive advantage, our current development focus is on our two North American projects: Magnolia LNG in Louisiana and Bear Head LNG in Eastern Canada.

Magnolia LNG LLC, a wholly owned subsidiary of LNGL, is indeed developing an 8 mtpa LNG export terminal in Louisiana. What are some of the final steps leading up to the completion of this project?

To start with, it is important to recognize that Magnolia LNG is located on one of the best project sites in the industry, which is reflective of our comprehensive approach to site selection and project development that places a premium on existing infrastructure, land access, gas supply, regulatory regime, and other differentiating key business drivers. Our Magnolia site, located 30 feet above the Industrial Canal near Lake Charles in Southwest Louisiana, is safely positioned above the hurricane storm surge that impacts the region from time-to-time. In addition, the site has access to bountiful quantities of feed gas available through an existing natural gas pipeline traversing the property. The pipeline interconnects with key regional pipelines accessing most U.S production areas including onshore conventional and unconventional resources as well as US Gulf of Mexico production. This well-developed pipeline system lends itself to efficient and cost competitive transportation of natural gas feedstock into our facility. In an industry where capital costs are critical, the less investment required to access feed gas supply or pipelines, the better the head start to a successful liquefaction project. Finally, possibly second only to Asia Pacific, the US is strategically located close to many major LNG consuming markets. The current expansion efforts to make the Panama Canal wider and deeper may further boost US LNG exports to Asia, as larger ships will be able to use this lower cost delivery path.

Our Magnolia LNG project and its four trains, each with a design capacity of 2 mtpa or greater of production, has gained tremendous momentum recently. First of all, we signed a binding lump sum turnkey (LSTK) EPC contract with the KBR‐SKE&C joint venture (KSJV), with KBR leading the joint-venture. This contract has now been extended through 31 December 2016. Furthermore, we just received our FERC Order from the United States Federal Energy Regulatory Commission (FERC), authorizing us to site, construct and operate the Magnolia facility. We must still clear a statutory rehearing process at which point the FERC can issue the FERC Final Order. We then move to complete Non-FTA approval with the Department of Energy. The entire process should be a 3-4 month timeline.

In parallel, we are dedicated in our efforts to complete marketing of additional offtake to navigate towards a final investment decision for the project.

Your project in Nova Scotia, Canada displays similar characteristic to the Louisiana terminal. What are the specific challenges that drew your attention to this project?

In Canada, we are fortunate to also have a great site. Our main challenge is to find a way to transport gas resources to our project. The required pipelines are largely already present so our focus is to identify customer(s) who can partner with us to complete the value chain. There are many benefits to being in this region, and we are well-positioned in the eastern region to provide LNG to European, South American and certain Asian markets.

Our focus now is to direct gas supplies to our site, and then organize with interested parties. A promising development model may be to target upstream producers in Western Canadian production areas that also have existing LNG portfolios or desires to expand into this segment of the industry. By establishing facilities in the east, many new markets open up, which can indeed be very attractive to the upstream groups.

Why did you decide to concentrate your efforts on North America?

The company was formed in Australia where we developed the technology, but our projects are established wherever there is market potential. Regulatory processes play an important role, and the US and Canada maintain very transparent regulatory systems, thanks to FERC in the US and coupled with a stable and reliable government in both locations. This translates to lower costs to finance, as well as enabling more entrepreneurial ways to finance projects. If a company is trying to introduce a new concept to market, an efficient environment in which to do it is the US Gulf Coast, whereas new initiatives in other regions can require infrastructure investments of upwards of tens of billions of dollars. This naturally makes it difficult to enter those markets. North America is a business friendly environment prepared to address market issues and needs, and is strategically located close to many major LNG offtake markets. In addition, it has an extremely large, low cost natural gas reserve base available for export.

We are mainly interested in mid-scale projects, producing 4 to 8 mtpa (across multiple LNG trains with a nominal size of 2 mtpa each), in places where we don’t need to invest in extensive infrastructure. For instance, with Magnolia, we have an existing LNG shipping channel and a pipeline already on site. Finding the right site is critical, and regardless of whether there is existing infrastructure nearby, everyone still wants a low fee to provide liquefaction services, adding to the challenges. Our technology provides a very nice answer for lean feed gas, so if one is able to secure a good supply of lean gas without enough propane to extract as a refrigerant, it is not a problem. At this time, our company is working to further develop our international strategy, continuing to seek available opportunities around the world, and assessing their potential for development.

The Fisherman’s Landing LNG Project in Gladstone, Queensland, Australia was one of LNGL’s first projects, before the company’s focus shifted towards North America. Where does this project stand now?

Gladstone, in Queensland, was indeed one of our first true projects. The project remains ready to be constructed with the main problem being lack of a reliable gas supply. Reports indicate that even the three major LNG projects already operating in the region are currently struggling with gas supply. Some of the projections on the amount of gas available in the region, as well as the cost of delivering this gas turned out not to be as attractive as initially estimated. As a result, FLLNG will not be an easy project to develop, but we are working hard and looking at different options in order to find the best and most suitable solution for this asset.

Your patented optimized single mixed refrigerant technology plays an important role in supporting the realization of the company’s strategic goals. Could you elaborate on the key specific features of this technology?

Our choice of refrigerants, our compressor/driver selection, our use of combined cycle waste heat recovery, and our innovative boil off gas recovery system all contribute to the high efficiency and simple low cost arrangement presented by the OSMR® technology. These, combined with the compact modular mid-scale configuration, represent our optimized project execution approach and generate the OSMR® advantages demonstrated to date.

We see our recently established relationship with KBR/KSJV in a lump sum turnkey contract arrangement as a validation of our innovative capabilities, particularly for our patented OSMR® liquefaction process technology. This technology has been very well received by the market, with endorsement by KBR emphasizing this as a reliable technology solution.

There are several components that make the OSMR® cost efficient, as well as environmentally friendly. We are proud to share that the Magnolia plant is the most efficient plant that has ever been designed, and also boasts the smallest environmental footprint of all plants of this nature to date. The cost per ton of natural gas is still relatively high in today’s world market (compared to historical norms), so our next initiative as an industry is to work to decrease the total cost of gas. Thanks to the OSMR® technology, we have a low carbon emission footprint, we will be able to deliver low capital costs at around USD 500 per ton, and our operating costs are also expected to be some of the lowest in the industry, demonstrating that we are moving in the right direction.

Thanks to the compact modular design of the plant, we minimize the size and site work for our facilities, resulting in reduced onsite construction cost as well as minimized risk of cost overruns. Whereas traditional facilities would produce eight million tons of LNG using an area encompassing up to three to four hundred acres, we are able to produce this same quantity in a compact 115 acres. We believe that in this regard, we have demonstrated the potential for major improvements in the industry, while we are also keen to ensure that safety and best reliability practices are never compromised.

You were appointed Managing Director and CEO of LNGL in April 2016, after having held senior executive roles in the international energy sector – in both Texaco and Chevron. What attracted you to join LNGL?

I had spent the last five years working in the Natural Gas Marketing Supply and Trading sector at Chevron, which included LNG responsibilities. Part of my career with Chevron was with business startups, meaning serving on the boards of companies, or helping to run startup companies. Even though LNGL has been around for over a decade, we are still in a “startup mode,” which made me an appropriate fit for this position. We are eager to get the word out in Houston and around North America about our company, and I am able to offer a substantial network of contacts, thanks to my time not only with Chevron, but also with many natural gas suppliers. In this capacity, I feel capable of getting LNG Limited more recognition.

Where do you want to take LNGL over the next five years?

Our first priority is getting Magnolia up and running. No matter how much support and backing a project has, until all the technology is in place, and a project is visibly working, there are still major steps to be made. We are looking for other opportunities where our technologies will provide us further advantages. This is part of our growth plan that we are working to put together.

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