Three LNG developers mull Brownsville as new Texas export hub

By HARRY R. WEBER
Bloomberg

Brownsville, on the southernmost tip of Texas, has had more than its share of booms and busts.

Shipping, steel, cotton, Civil War-era smuggling, trade with Mexico -- they all helped the city prosper. But Union Carbide shut its chemical plant. A big shopping mall closed in the 1990s. Airbus Group and steel producers passed it up for new plants.

Today, Brownsville is America’s poorest metro area, with 35% of residents living below the poverty level, twice the national average. The school district and the county are its two biggest employers.

Enter the shale boom, which has the US producing more natural gas than it can burn. Three groups are now deciding whether to build plants in Brownsville that would liquefy the fuel and send it abroad. If they make good on their plans, the city’s fortune changes with 400 permanent new jobs averaging $70,000/year, more than double the median household income of about $32,100, and hundreds of millions of dollars in tax revenue, port fees and local spending. If they flop -- as some suspect they might considering this year’s collapse in energy prices-- Brownsville ends up back where it started.

Opportunity There?

“We have a generation of people that the only thing they know about Brownsville is high unemployment, high poverty levels and lack of education,” said Gilberto Salinas, executive vice president of the Brownsville Economic Development Council. “But we have come a long way and opportunity is there. The question is, what do you do with it?”

As Cheniere Energy readies the first LNG exports from its Louisiana complex early next year, NextDecade, Texas LNG and Annova LNG see the underutilized Brownsville port some 450 miles to the west as their base for a second wave of shipments to Europe and Asia.

Spot LNG prices for delivery to Northeast Asia have slipped about 30% over the past year, based on data compiled by World Gas Intelligence. Natural gas on the New York Mercantile Exchange recently traded below $2/MMBtu, the lowest in three years. Meanwhile, the spread between US and Northeast Asian gas prices has narrowed by almost 20% in the past year, damping the allure of US exports.

“Sometimes I pick up the paper, whichever paper it is, it seems like the sky is falling,” Kathleen Eisbrenner, chairman and CEO of NextDecade, said last month at a Brownsville Chamber of Commerce forum. “And, actually, if you get out there and talk to the customers and talk to producers, you’ll find there’s lots of gas in this country and there’s lots and lots of appetite for LNG globally.”

Some Pessimism

Even so, Eisbrenner said Sept. 29 in an interview at her office in The Woodlands, Texas, her board had recently met and some members seemed “pessimistic” about the outlook for commodity prices.

The NextDecade project, which calls for the first two of six liquefaction trains to come online in 2020 at a cost of $8 billion to $9 billion, continues to make sense because of long- term global gas demand projections, Eisbrenner said. The board remains committed, she said, and positive signs include preliminary agreements earlier this month to sell 14 MMtpy of LNG from the company’s proposed export terminal, more than half of the project’s capacity.

A final investment decision by New York hedge fund backers York Capital Management Global Advisors, Halcyon Energy Investors and Valinor Management is still 18 months away. Spokesmen for the firms either declined to comment or did not respond to questions.

Some Optimism

Officials for Texas LNG, backed by New York hedge fund Third Point, and Annova LNG, backed by Chicago-based electricity producer Exelon Corp., also sounded optimistic at the Brownsville forum.

Third Point spokeswoman Elissa Doyle declined to comment. Annova’s director of LNG, Mitchell Walk, said one constant in virtually every conversation with potential investors is the need for additional liquefaction capacity over the next five years in order to keep the market from being short of LNG by the early 2020s.

Exelon plans to invest nearly $3 billion to construct and equip six LNG trains and develop the surrounding infrastructure, spokesman William Harris said in an e-mail. A final decision is expected by the end of 2017.

Texas LNG is planning the first of two LNG trains by 2020 at a cost of $650 million. A final decision is expected in early 2017.

California Dreamin’

To Brownsville, LNG exports would be a boon much like technology has been to San Jose, California, which has a median household income three times that of the Texas city, according to US Census Bureau figures. The metropolitan area’s unemployment rate was 6.6% as of September, compared with 5.1 for the nation as a whole, US Bureau of Labor Statistics data show.

As he served up brisket, chicken and sausage at his Buddy’s BBQ restaurant a mile from the port, Mike Marchand said he believes business activity from LNG exports could boost sales by a third.

“Brownsville has negated a lot of things in the past and shot themselves in the foot,” Marchand said in an interview.

Over the years, lack of sufficient infrastructure and regional transportation prevented Brownsville from competing for investment with cities such as Houston and San Antonio, according to a master plan commissioned by the smaller city in 2007. The opening up of cross-border trade also increased competition for low-cost labor, chipping away at one of the community’s advantages, the report said.

City’s Assets

Brownsville’s deepwater channel and large amount of available land -- only about 7,000 acres of the roughly 40,000 acres of port-owned land are developed -- make it an attractive opportunity for LNG investors, Port Director Eduardo Campirano said in an interview. Brownsville also doesn’t have the congestion common at other ports, he said.

In the end, because of commodity prices, Brownsville may get some of what it’s hoping for, but not all, forcing it to another industry to stimulate growth.

It already has one in its pocket. Elon Musk’s commercial space-transport firm, SpaceX, is building a commercial launchpad east of Brownsville with help from more than $20 million in state and local incentives. Local officials believe it will create 500 jobs over a decade and require as much as $100 million in capital investment.

If LNG hopes don’t come true, “we’ll continue to run the channel,” said Chamber of Commerce board member Humphrey Thomas, a local wealth management adviser.

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