COOS BAY — Veresen Inc. has announced the signing of a preliminary agreement with JERA Co. Inc. to purchase liquefied natural gas for an an initial term of 20 years.
The terms of the agreement signed today call for the purchase of at least 1.5 million tons per year of natural gas liquefaction capacity at the Jordan Cove LNG facility.
With Jordan Cove's LNG facility expected to have a capacity of 6 million tons per year, Veresen will continue negotiations for the remaining capacity.
“This agreement signals strong market support for the Jordan Cove LNG project from the world’s largest LNG buyer and represents a significant step forward in the project’s development,” said Don Althoff, President and CEO of Veresen, in a press release. “We are pleased to have JERA as our first customer and look forward to deepening our relationship with them as we continue to progress Jordan Cove LNG.”
Tuesday's announcement comes just a week after the Federal Energy Regulatory Agency's decision to deny Jordan Cove and Pacific Connector's permit. Jordan Cove LNG spokesperson Michael Hinrichs said the JERA deal was "quite close" before the decision came down.
According to the language in the decision, FERC denied the permit because of a lack of evidence to support market demand.
The regulatory agency invited the company to provide additional evidence for the agency to consider should it file for a rehearing, which Veresen is currently looking into.
"There's nothing specific right now, but we are building that argument," Hinrichs said. "We have to provide new information when submitting the request for a rehearing. We have a team looking at that, but don't have specifics of what that will look like."
With 30 days to file a request for a rehearing, Veresen has already indicated their intention to do just that, and Tuesday's announcement is just the first step.
"I can say that we are working with other customers and in negotiations as we speak," Hinrichs said. "We are actively and quickly working on negotiations, and today's announcement is just the opening."
You have free articles remaining.
Petroleum and energy expert Art Berman, who was pessimistic about Jordan Cove's prospects before FERC's decision, has not changed his views after Tuesday's announcement.
"Whenever I look at them, the economics are marginal to nonprofitable," Berman said. "The announcement today is largely symbolic."
While Veresen reached a preliminary agreement with JERA, it still needs to negotiate a tolling agreement and reach an agreement on gas costs.
Combining the liquefaction, processing, transportation and supply costs, Berman said JERA would have to charge their customers a larger sum than the current Japanese LNG spot price of $7.50 per MMBTU.
Berman said those details would be interesting to look out for, especially with natural gas costs currently low. Should the U.S. experience a supply deficit later this year, it would force natural gas prices to rise.
"They say they have a deal, but until they have a purchase agreement, they have nothing," Berman said. "The devil is in the details and as they've stated, I remain skeptical."
JERA Co. Inc. is a joint venture by two of Japan's biggest electrical power generation companies, Tepco and Chubu Electric Power.
The pair formed JERA in April 2015 to create economies of scale in purchasing and moving liquefied natural gas and thermal coal to their power plants. They remain competitors in Japan's power market.
In February 2016, JERA announced an initiative to join with the world's other biggest LNG customers, Korea Gas Corp. and China National Offshore Oil Corp., in a strategic alliance. In 2014, that trio bought about 35 percent of the world's annual market of 239 million metric tons of LNG, according to a February Bloomberg Business report.