Tugboats left useless by US shale boom finally have job to do
Bloomberg reported that somewhere in the Gulf of Mexico right now, the Energy Atlantic is headed for Louisiana to collect an historic cargo: the first exports from America’s shale gas revolution.
Waiting to steer the giant tanker into Cheniere Energy Inc.’s USD 15 billion Sabine Pass terminal is a fleet of tugboats that’s spent the past seven years killing time — some days holding emergency exercises, some days racing each other. They were all set to escort shipments of natural-gas imports, but the ships never arrived: unexpectedly, the U.S. started producing enough gas of its own.
Mr Richard Ennis, head of natural resources at ING Capital, said that “The boats are beautiful — you could eat off the floor in the engine room.”
Mr Ennis said that with the switch to exports, the tugs will at last have a job to do — even if it’s not the one they expected. They “may actually get a scratch on them.”
The surge in oil and gas output from U.S. shale drillers has the potential totransform world markets. At home, it’s left a chain of idle import facilities from the Northeast to the Gulf Coast, as energy companies pile onto the export bandwagon instead: $50 billion-worth of terminals are due to come online in the next five years.
Not Needed
But if the importers were blindsided by shale, exporters now confront a glut in world markets and slowing demand in Asia that’s making some investors cautious. Cheniere’s CEO was ousted last month as shareholders rebelled against his plans to bet even more heavily on exports.
Cheniere has been able to avoid taking a financial hit on its idle import facilities because customers reserve space there even though they don’t use it. Total SA and Chevron Corp. are contracted to pay about $5 billion over 20 years to keep the tugboats, including a crew of five to seven members each, and the Sabine Pass import terminal in prime shape.
For that, each energy giant gets to reserve 1 billion cubic feet a day of re-gasification capacity — the ability to convert shipments of imported LNG into gas that could be piped around the U.S., if it was needed.
Good Precedent
The import terminals “set a good precedent even though there is very very little going in,” Mr Mihoko Manabe, senior vice president of Moody’s Investors Service in New York, said in a Dec. 15 phone interview. “We could take comfort in the fact that these contracts are being honored.”
But at least one oil major has paid up to escape a long-term contract that’s no longer needed. ConocoPhillips paid a termination fee of $522 million to Freeport as part of a deal to end its reservation of import capacity, saying it would save as much as $60 million a year.
Mr Skip Aylesworth, a portfolio manager at Hennessy Funds, which holds a 4.5 percent stake in Cheniere, said that “History is fraught with people relying on contracts to support the company” only to have “economics go the wrong way.”
Mr Aylesworth said that “If in fact any one of the major players decides to unilaterally null and void their contract, it could cause a major revenue problem. It’s the customers who “have all the power.”
Chanos Short
At Sabine Pass, Cheniere has contracted 88 percent of the capacity for the first five liquefaction plants. That will bring annual payments of $2.9 billion for two decades once they’re all online.
For Cheniere’s former Chief Executive Charif Souki, such commitments were strong enough to press ahead with more export investments. Last summer he announced plans to boost capacity by another 50 percent — even before the first plants had come online, which they eventually did on New Year’s Eve.
By then Souki was gone. With gas prices in Asia and the U.S. near multi-year lows, shareholders had gotten nervous. Among them were some high-profile investors. Jim Chanos has said he was shorting the stock amid concerns about growing debt. Carl Icahn, who accumulated a 14 percent stake, questioned Souki’s plans. Souki was forced out last month by the board.
‘Just Refrigerators’
ING’s Ennis says Sabine Pass and the other export terminals under construction aren’t directly exposed to commodity-price risks.
Source : Bloomberg