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Ohio Utica Shale

Analysts offer look at LNG approvals, projects pending

By Bob Downing Published: September 12, 2013

A look at LNG from Sterne Agee analysts Michael Dudas and Patrick Uotila:

Our Call
Encouraging news flow continues to reflect the materialization of a strong U.S. LNG cycle that should offer a long tail of revenue and margin growth opportunities for select E&C firms. We believe portfolios with cyclical growth strategies should add E&C positions in Fluor, CB&I, Jacobs and URS Corporation in front of pending EPC awards surrounding North American natural gas monetization.

• Dominion (D, $58.61, NR) received Department of Energy approval for its $3 billion plus Cove Point project in Maryland. Dominion previously awarded the EPC contract to a joint venture of IHI Corporation (7013-TKS, 407 JPY, NR) and Kiewit (private). The Cove Point approval follows the last DOE approval, The Lake Charles project, by about a month. Front End Engineering and Design (FEED) on the Lake Charles project will be done by Technip (TEC-PAR, 89.42 EUR, NR). Several of the larger LNG projects have awarded FEED contracts which should be completed during 2014 when larger Engineering Procurement and Construction (EPC) contracts should be rewarded.

• We remain encouraged by the accelerated pace of approvals. So far, 4 LNG projects worth over $20 billion have been approved for U.S. export approval. The $6 billion Cameron LNG project remains second in line to receive the next approval. Joint ventures bidding on the EPC for this project include Fluor/JGC (1963-TKS, 3705 JPY, NR) and CB&I/Chiyoda (6366-TKS, 1141 JPY, NR). We believe Exxon's (XOM, $88.84, NR) $10 billion Golden Pass project remains around 10th in line for DOE approval. A CB&I/Chiyoda JV was awarded the pre-FEED on the terminal at Golden Pass while Worley Parsons (WOR-ASX, 22.77 AUD, NR) was awarded the pipeline pre-FEED.

• Freeport LNG (private) recently signed two additional deals to export gas to Asia supporting commitments to justify a third train which would bring the total project cost to $11 billion. We continue to expect a Freeport LNG announcement regarding an EPC contract where we think CBI remains well positioned in a JV with Zachry construction. Japan's Toshiba (6502-TKS, 413 JPY, NR) and SK (018670-KRX, 71700 KRW, NR) of Korea signed agreements for 2.2 million tons of LNG per year. We believe the first two trains together should come in $5.0-$6.0 billion. One train per year remains expected to open during 2017, 2018, and 2019.

• Our LNG project development base case scenario assumes more than 10 billion cubic feet (bcf) per day of proposed project capacity comes on line in North America during 2015-2020, with capital spending of $30 billion plus. Liquefaction terminals remain considerably expensive ($2-$10 billion) projects that support a very long construction cycle (4-6 years). Peripheral construction activity around LNG pipelines, processing and storage should offer incremental opportunities worth billions of dollars starting in 2013, lasting through 2017. We expect Front End Engineering and Design (FEED) activities during 2013-2015 and Engineering Procurement and Construction (EPC) awards during 2013-2018. We believe Fluor, Jacobs, and Chicago Bridge & Iron remain particularly well suited to win scope at each project. We expect the size and complexity of these projects to dictate multiple scopes providing several angles for participation in addition to the main EPC contract.




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