Shell to sell Elba LNG stake in Georgia to partner Kinder Morgan for $630M

Kinder Morgan and Shell have reached an agreement for Kinder Morgan to purchase 100% of Shell's equity interest in Elba Liquefaction Co. (ELC), officials announced on Thursday.

The Elba liquefaction project is proposed to be constructed and operated at the existing Elba Island LNG terminal near Savannah, Georgia. Kinder Morgan currently owns 51% of the ELC joint venture, while Shell owns the remaining 49% and subscribes to 100% of the liquefaction capacity.

Kinder Morgan will purchase the remaining 49% of the JV that it does not already own. Kinder Morgan says its expected incremental investment resulting from this transaction is approximately $630 million, bringing its total incremental investment in all the liquefaction and terminal facilities at Elba Island to approximately $2.1 billion.

"We are very pleased to purchase Shell's equity interest in the joint venture and advance the project with Shell's continued support and subscription to 100% of the capacity of our world-class Elba Island terminal," said Kimberly S. Watson, president of natural gas pipelines for the East region at Kinder Morgan.

"We look forward to this additional investment opportunity that provides attractive returns and that serves a high-credit quality customer in Shell," she added.

Permitting continues for the proposed Elba project, which consists of 10 small-scale liquefaction units to be purchased from Shell. They will be integrated with the existing Elba Island facility and enable rapid construction compared to traditional large-scale plants.

The next step in the regulatory approval process is for the Federal Energy Regulatory Commission (FERC) to issue a draft environmental assessment. Subject to regulatory approvals, construction could begin in fourth quarter of 2015, with initial production expected to occur in late 2017.

"This is a good opportunity to leverage the proven track record of both companies to deliver an innovative LNG export project in the United States," said Ton Ten Have, Shell's vice president of LNG operations and growth in its upstream Americas business.

"Shell and Kinder Morgan have successful relationships in North America based on Kinder Morgan ownership with Shell as a customer and we believe this will be a successful model at Elba as well," he added.

In 2012, the project received authorization from the Department of Energy to export to Free-Trade Agreement (FTA) countries. An application to export to non-FTA countries is pending.

Under full development, the Elba project is expected to have a total capacity of approximately 2.5 MMtpy of LNG for export, which is equivalent to approximately 350,000 Mcf/day of natural gas.

The project was first announced in January 2013 by Southern Liquefaction Co., a Delaware limited liability company, and a unit of Kinder Morgan, and Shell to add liquefaction and export capability to Southern LNG's existing LNG regasification terminal at Elba Island in Chatham County, Georgia.