Kinder Morgan discussing Elba Liquefaction expansion, Gulf LNG export project

Kinder Morgan may be interested in expanding its Elba Liquefaction facility in Georgia and resurrecting its shelved Gulf LNG export project in Mississippi amid high spot prices in end-user markets that are encouraging buyers to lock in new long-term contracts for US capacity at lower fixed prices.

Shell is Kinder Morgan's sole customer at Elba, as an offtaker. Kinder Morgan continues to collect reservation fees from a customer at Gulf LNG, though there is virtually no demand for LNG imports along the Gulf Coast.

During an investor conference call April 20, Kinder Morgan executives said there have been renewed discussions about export opportunities at both sites.

"There certainly is an opportunity for an expansion there, small-scale expansion," Vice President Thomas Martin said of Elba. "We had those discussions a couple of years ago. Obviously, with what is happening now, we're dusting that off again. In very early days to say whether there's a real potential there. But overall, the market opportunity suggests that may be something worth looking at."

Shell has a 20-year contract for the 2.5 million mt/year of export capacity at Elba.

Evaluating Gulf LNG project potential

As for Gulf LNG, CEO Steve Kean said during the call that Kinder Morgan was evaluating potential for advancing that liquefaction project.

"We have a regas customer at that location who is paying for that capacity," Kean said. "Obviously, in today's market, that's not in high use, not in use generally at all, but we have a customer and they're a paying customer, and they reserve the capacity and we made a deal."

Kean added, "Now we will work with that customer to see if there's something that would allow us to bring the potential for a brownfield liquefaction opportunity forward, but we don't have anything to announce there today."

In 2020, amid record low LNG prices in Asia, Kinder Morgan said the fully permitted Gulf LNG project was unlikely to be developed anytime soon. In most investor presentations and other public settings since, Gulf LNG had not been mentioned.

New dynamics

The turnabout in end-user markets over the last year -- delivered spot prices in Europe and Asia hit record highs in early March -- has changed the dynamics. US LNG exporters, offering relatively low fixed fees and destination flexibility for cargoes, have benefited. Cheniere, Venture Global LNG and NextDecade have been among the exporters and project developers that have announced new long-term deals in recent months.

Italy's Eni won an arbitration panel ruling in June 2018 that it could terminate its capacity deal tied to the Gulf LNG unloading, storage and regasification facility that was not scheduled to expire until 2031. As part of the ruling, Eni was required to pay compensation to Kinder Morgan.

Kinder Morgan fought a similar claim by Gulf LNG's remaining regas customer, Angola LNG Supply Services, a consortium of international oil companies including Eni. Last year, an arbitration panel denied the customer's claims, and a Delaware court later confirmed that judgment, according to a Kinder Morgan US regulatory filing in February.