Kinder Morgan has struck a deal selling a 49% stake in the Elba LNG project to EIG Global Energy Partners for US$555 million.
Announcing the deal on February 28, Kinder Morgan said the payment would include an upfront US$385 million contribution, to cover past spending, with another US$170 million for capital expenditure on the development.
Kinder Morgan had owned 100% of the venture since July 2015, when it bought out Royal Dutch Shell, which had a 49% stake. At the time, Kinder Morgan said it expected its increased share of spending on the project as a result would be US$630 million.
At the time Shell sold out, the cost of the Elba LNG project was put at around US$2.1 billion. The project cost cited this week, excluding capitalised interest, was US$1.3 billion.
“We are excited that EIG will become an equity owner in Elba Liquefaction Co. as construction continues at Elba Island. The project, which began construction on November 1, 2016, is supported by a 20-year contract with Shell,” said Kinder Morgan’s president and CEO, Steve Kean.
Shell has signed on to buy all the facility’s production. He went on to say the venture with EIG was “another strategic step towards achieving our stated goals of strengthening our balance sheet and positioning the company for long-term value creation”.
The project includes 10 modular liquefaction trains, using Shell’s technology. The first units of the Elba LNG project should be in service in mid-2018, with the last starting in early 2019. The project will be able to export 2.5 million tonnes per year of LNG.
The engineering, procurement, construction, commissioning and start-up contract was awarded to IHI E&C in April 2016. The trains will be connected to the existing regasification terminal at Elba Island.
Kinder Morgan’s position in North America’s midstream has made it an ideal partner for private equity companies seeking dependable payments, as most of its revenues come from fees, rather than more volatile commodity prices.
For instance, the company struck a deal in June with Riverstone Investment Group on the Utopia pipeline project. Private equity has been slow to move into liquefaction, although Blackstone did sign on to a US$2 billion stake in Sabine Pass in 2012, while EIG bought in to a Cheniere Energy project during 2015.