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Magnolia LNG agrees EPC contract with KBR-SKE&C joint venture

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LNG Industry,

Liquefied Natural Gas Ltd (LNGL) has announced that Magnolia LNG – a wholly owned subsidiary of the company – has agreed a lump sum turnkey (LSTK) engineering, procurement and construction (EPC) contract with KSJV for the Magnolia LNG project. KSJV is a KBR-SKE&C joint venture (JV).

Highlights of the contract include:

  • EPC contract LSTK cost of US$4.354 billion for the four LNG trains and all associated infrastructure and facilities.
  • EPC guaranteed production of 7.6 million tpy. This is an increase of 0.8 million tpy from previous guidance.
  • LNGL’s OSMR® technology utilised by the EPC contract LSTK plant design.
  • Based on final design at final investment decision (FID), installed capacity cost/tonne range of US$495 – US$544.
  • Guaranteed LNG plant fuel gas consumption of 8%, or 92% feed gas production efficiency.
  • EPC contract LSTK price will be valid until 30 April 2016.

The contract will cover the EPC of four LNG production trains, two 160 000 m3 LNG containment storage tanks, LNG marine and ship loading facilities, and any supporting infrastructure. Each train has a minimum design capacity of 2 million tpy. The contract will also cover all approvals and licenses required after the FID.

MLNG previously announced on 24 August 2015 that it had chosen to use Siemens Energy Inc.’s process compression and driver equipment. Higher final plant design capacity will potentially, therefore, be enabled, because of the increased available power from the Siemens equipment. As a result of this, MLNG’s per tonne EPC cost could potentially be reduced within the scope of US$495/t – US$544/t, based on the final installed capacity design.

The EPC also guaranteed that production totalling 7.6 million tpy for the four-train MLNG project will remain unchanged.

In addition to this, KSJV provided pricing on a reduced three-train scope. KSJV estimated that the take out cost for a single train would be US$630 million, and will be subject a final confirmation on 31 December 2015.

Post-FID costs to early 2019 – when commercial operations are scheduled to begin – are predicted to range between 13.5% (US$585 million) and 15.5% (US$675 million) of the EPC contract price. These costs will include owner’s engineer, O&M mobilisation, commissioning gas, insurance, regulatory and other minor contracts, and capitalised overhead costs. This does not include capitalised interest during actual construction.

Maurice Brand, the LNGL Managing Director and CEO, said: “We are pleased to announce the final lump sum turnkey EPC contract pricing details after significant efforts by the KSJV and the Magnolia project team, managed by MLNG’s Chief Operating Officer, John Baguley. I want to thank the KBR and SKE&C leadership for their diligence and hard work on delivering the LSTK pricing. The total EPC capital cost in the range of US$495 to US$544/t of LNG plant capacity (for the 8 million tpy or greater plant) establishes a new low for US Gulf Coast projects and is substantially lower compared with recent LNG projects around the world.

“With execution of the EPC contract in hand, we shall continue with final engineering activities but will not commit to out-sized, non-cancellable commitments in advance of execution of off take agreements for at least 4 million tpy of additional sales.

“The EPC contract costs agreed with KSJV reinforce the company’s view that our business model of mid-scale, modular based LNG trains of nominally 2 million tpy design capacity, incorporating the company’s OSMR LNG liquefaction process is valid, providing a sustainable long-term business platform that can be replicated in future projects.”

KSJV may be eligible for annual revenue sharing payments ranging up to US$30 million across the four-train plant over a 15 year period, following the beginning of commercial operations for each train. Yearly sums to be paid to KSJV represent an almost linear incline, starting at US$0 for production below 1.7 million tpy and rising to US$30 million for production over 2.0 million tpy. All yearly payments will be based on the production of LNG achieved in a given year reflected on a per train average across LNG plant.

When combined with operation costs, as well other costs, the revenue sharing agreement is expected to approximate US$0.50/million Btu. The target cost of US$0.50/million Btu represents a predicted operation cost implicit in the EBITDA guidance of approximately US$2.50 across the four-train project.

The KBR President and CEO, Stuart Bradie, said: “We are delighted to work with Magnolia LNG on this ground-breaking project for more innovative, cost effective, efficient and greener LNG.

“KBR’s long history of success in global LNG, ammonia and plant modularisation make us a natural fit for this exciting project and we are pleased to have the opportunity to bring our unique skills, together with our self-perform construction capability and outstanding safety record, to create exceptional value for MLNG.”

Edited from press release by David Rowlands

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