Jordan Cove Energy Project Suffers Setbacks but Remains Resilient

on March 17, 2015 at 12:00 PM


At the beginning of the year the proposed $6 billion Jordan Cove Energy Project looked like nothing could stand in its way. The project is slated to be built in Coos County on the southern Oregon coast by Calgary-based Veresen Inc. and is one of more than a dozen US based liquefied natural gas (LNG) project proposals that hope to tap LNG markets in the Asia-Pacific region, which currently represents two-thirds of global LNG demand with projections for that number to continue to increase. It will have storage capacity of 320,000 cubic meters, and liquefaction capacity of 6 million metric tons per year, expandable to 9 million metric tons per year.

However, what a difference a month can make. In February, local environmental groups started to push back against the project, garnishing considerable media attention. Some of the groups are advocating that a so-called Community Bill of Rights be passed to ensure that local residents can have more control over the project. Those goals, however, look like little more than wishful thinking, at least according to legal experts and Coos County officials.

Coos County Commissioner John Sweet said that issues such as free movement of commerce between states are determined on the Federal level, while the Department of Commerce sets tariffs and the Department of Energy handles exports, so any Community Bill of Rights would be beyond local jurisdiction.

The Jordan Cove Project also experienced a set-back last month, but one that appears to be temporary, when the Federal Energy Regulatory Commission (FERC) postponed the project’s environmental clearance, moving the date from February 27 to June 12. Veresen officials expressed disappointment over the postponement, but added that they look forward to receiving final FERC approval in June.

Veresen’s next hurdle, however, appears to be more substantial. The Ontario Court of Justice ruled on February 26 that Michigan-based Energy Fundamentals Group Inc. (EFG) could take up to one-fifth ownership in the project under a 10-year old agreement it reached with Chicago Energy partners L.P., a predecessor to Veresen, even though the project has been switched from an import to export facility.

Veresen said in a news release the same day that it’s “reviewing the decision of the court in order to determine what further steps to take in respect of the decision including, among other things, filing an appeal of the decision.” The company has 30-days to file an appeal.

Dorreen Miller, Veresen’s director of investor relations, said that the company is open to having project partners, but EFG is not an ideal partner because it lacks LNG industry experience. EFG for its part, describes itself as a “sustainable energy investment and advisory services company.”

Plunging oil and gas prices, off by more than 50 percent since mid-June, pose another serious challenge for the Jordan Cove Project. Lower prices have already caused several other LNG project proposals to be put on hold, including Excelerate Energy’s Texas LNG terminal and BG Group’s Lake Charles project which has delayed a final investment decision (FID) until 2016 instead of this year.

Though Jordan Cove has export permits from Canada and the US, it hasn’t yet secured any long-term off take agreements with suppliers. LNG projects must ink these long-term supply contracts to secure funding so they can proceed with making a FID.

In the long term, however, Jordan Cove may still have some advantages over its larger LNG project counterparts which can cost four or five times as much to build. First, mid-sized projects can be completed quicker, so are able to recover construction and capital costs more quickly. Small to mid-sized LNG projects can also be more flexible negotiating both long-term contracts and selling cargoes on the spot market as well as tapping into niche markets such as providing LNG as bunker fuel for the developing domestic maritime shipping industry.

Finally, a temporary postponement with its project may actually work in Veresen’s favor since oil and oil-linked LNG prices may start to trend upward by the end of the year. If so, Veresen can lock in long-term off take agreements at these higher prices and finally reach its FID.

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