On cusp of $23 million incentive deal, Eagle LNG president talks Jacksonville’s place in the market, new plant plans and regulation changes

bigstock Industrial Gas Storage Tank L 341646016 1024x712 - On cusp of $23 million incentive deal, Eagle LNG president talks Jacksonville's place in the market, new plant plans and regulation changes

January 13, 2020

(Courtesy: Jacksonville Business Journal)

Eagle LNG recently filed plans for export plant out of Jacksonville – a move that President Sean Lalani says solidifies Jacksonville’s place as a hub for small-scale distribution.

Incentives for the project will be voted on by the City Council tonight. The $23 million package would have the city rebate 50 percent of the ad valorem tax revenue the facility generates over 10 years. To receive this, Eagle has to hire 12 employees at an average salary of $85,000.The incentives will go towards a 200-acre, $542 million liquefied natural facility, Eagle LNG’s third location in Jacksonville.

Low sulfur fuel emission regulations go into effect this January and are expected to shift the maritime industry, as ships convert to LNG, low sulfur fuel or add scrubbers to their ships.

Lalani sat down with the Business Journal to discuss Jacksonville’s place in the LNG market, plans for the new export plant and how 2020 regulations may shift the industries.

What is the timeline for the construction of the new plant?

The current timeline calls for us to start construction at the end of June 2020. Completion is the end of 2023.

Why is Jacksonville a good location for an export plant?

First and foremost, when we were surveying and looking for locations on the East Coast to locate a facility of this scale, we were looking for, firstly, communities that wanted us, where we felt welcome. And I would say in terms of Jacksonville, we’ve been welcomed with open arms. So, really looking for that receptive community that was looking for the investment that we wanted to make in the community.

We also looked at characteristics like labor force, and with such a strong military community here in Jacksonville, we knew we have access to a great committed talented pool of labor, which is extremely important and has borne out. We have an existing facility today operating on the west side of Jacksonville. We have an incredibly talented and committed team out there that are working on operating that facility. So, we’re excited about adding some new jobs and these are high paid, high skilled jobs that require a lot of training and the right skills. So, looking at Jacksonville, we knew we would have that pool available to us.

The third thing was, we were looking for some place that we could put a manufacturing facility right on the river. It was the availability of that location – nobody wants a facility like this in a residential area. The next big factor was the port. A key characteristic of this export facility is going to be shipping LNG. Knowing that we had a strong and supportive port and port community, in addition to companies like Crowley Maritime, Tote that can also help to operate the ships, and that will be required to transport this LNG.

In addition to the jobs, we’re talking about for the manufacturing facility, we’re also talking about creating an excess of 60 jobs in the shipping industry to support this facility. I’d say, the other key factor for us was proximity to out target market.

We’re kind of breaking the mold with this facility. This will be the first of its kind that will be producing LNG specifically for small scale export. The facilities that you’ve seen traditionally built elsewhere in the country or other places, like Australia, and elsewhere around the world, have been targeted toward what’s called the large-scale LNG industry. Traditionally, for the last 70 years, the LNG industry has been in operation, everything has been operated under the principle that bigger is better. That if I can transport using bigger ships, or I can produce LNG using bugger manufacturing facilities, and that scale will reduce costs.

Well, as we’ve seen with the technology across every end of the spectrum, it’s turning the LNG industry upside down as well. Where things are moving to so-called modular technology, where things can be brought in by small modules and then put together as Lego blacks, which is helping to reduce the cost of manufacturing, helping to reduce the cost of shipping to the point where we can produce LNG for some of these small nearby markets, as long as we’re close by. And being in Jacksonville allows us to save the day each way, relative to being on the Gulf Coast, for instance. So that along with the abundance of existing pipelines that come into Jacksonville, the fact that we don’t need to building new pipelines, but can use the existing infrastructure, that’s key criteria in our mind.

Will Crowley be handling the exporting?

On the export side, certainly we would love for Crowley to do all our shipping for us. I think we’re open to other companies as well and clearly there’s other companies operating in Jacksonville. But Crowley’s been a great partner for us and we’d love to get to continue that relationship.

Who are the potential clients for LNG exported to the Caribbean?

The Caribbean and Central America. If you look into the region for the last 30 years, it’s been dominated by supply of heavy oil from Venezuela; now with the turmoil in Venezuela and the increase in oil prices, these countries have been looking for a solution to bring in lower cost energy for some time.

think the impetus now is natural gas invites the opportunity to both reduce energy costs and deal with the issue of energy poverty in these countries. Natural gas is the cleanest burning fuel that we have. It allows them to not just reduce their CO2 footprint, but also to improve their quality. You don’t have black soot, you don’t have the minimum nitrogen oxide emissions, as well as carbon monoxide. From an overall environmental standpoint, it’s an environmentally friendly fuel, from that perspective.

With each of these countries, with Venezuela being in turmoil, that’s turned off some of the taps, in terms of availability of heavy fuel. Somebody is going to step into that void. Practically every island in the Caribbean, every country in South America, is a candidate to receive this. The challenge they’ve always had is that the traditional LNG industry has been catered towards Europe and Asia. So, that mean’s big cargoes for the most of these islands, if they were to receive one of those ships, that would represent a year’s worth of natural gas. That’s a lot of money to spend on infrastructure to receive one ship a year. So, the key is building a fit for purpose solution for these markets. That requires smaller ships, smaller cargoes, smaller infrastructure on their side, more frequent deliveries, which allows you to take advantage of economies of scale.

What are you doing to gear-up for IMO 2020 [regulations reducing the sulfur content of marine fuel]?

This is a critical piece of that. We have been at the forefront of preparations for 2020. We have an existing LNG plant in Jacksonville and we’re one of the few companies around the world that’s already providing bunkering services out of our Talleyrand bunker station. In addition to that, we also need to have a waterborne source of LNG to supply other markets up and down the East Coast. So, the introduction of this facility will allow us to introduce one of the lowest cost sources of LNG for that nascent market. In addition, we think there’s opportunities to potentially provide bunkering services in markets in the Caribbean. Having the capability of exporting this product to primarily serve power generation in a lot of these markets also opens up the opportunity to provide bunkering services in these markets, as well.

How do you anticipate the shipping industry will shift?

We’re seeing some of it already. In terms of LNG as a marine fuel, four of five years ago, when we first embarked on this project, the Crowley and Tote ships were on the first of their kind, in terms of the order of ships. But in terms of ships globally, it’s an excess of 500 ships. There’s approximately 50,000 to 70,000 ships that in operation out of those, the lion’s share are small displacement ships; tug boats and what have you. But with the big ships, they are the ones who benefit the most from moving to LNG, because moving to an alternative fuel, like LNG requires an incremental upfront investment. In order to recover that investment, you need to be using a lot of fuel. The biggest ships use the most fuel. So that’s where you see the best candidate for moving to LNG. That’s what we’ve seen in terms of the movement of the new ship orders for LNG. It’s dominating the large and medium container industry. It’s starting to or it has been dominating the cruise industry. Now we’re seeing it in the dry bulk industry. We’ve also seen it in the tanker industry, primarily early stage in Europe. But we see that also coming to North America, here and in Georgia.

How do you perceive the competitive from low sulfur fuel playing out in 2020?

First off, I think there’s room for everyone. We’ve seen refineries retrofit over to low-sulfur fuel, I think ultimately, every company needs to make the best economic decision for them. When we look at low sulfur fools, those are probably going to be the logical choice for existing ships. That’s because of the cost of cutting a ship in half, taking out its traditional petroleum tank and replacing it with LNG tanks, it’s extremely expensive and in addition, very time consuming. All of these ships want to be on the water as much as possible.

As far as new ships go, this is where we think LNG will play an increasing role and we’ve already seen that happen. It’s really a matter of deciding on horses for courses. LNG has taken on larger and larger share of the new ship market. The reason why I say there’s room for everyone is, just last week there was a report released from the International Energy Administration. This goes to thinking about LNG for power generation and going into the Caribbean and Central America. The IEA released a report looking at energy demand growth and what that actually means, relative to penetration of natural gas. What they highlighted was in addition to renewables, natural gas is going to be one of the critical forces, which allows us to hit out targets and goals as a global population, in terms of 2015 emissions.

Will Jacksonville continue to be a hub for the LNG market?

When you look at North America, there’s no place where this is happening more than Jacksonville. If you just look at the visitors that we have welcomed here in Jacksonville, multiple visitors from Asia, places like Japan, Korea and China, Europe, South America and the Caribbean and Central America. This has been the lifeblood of the small-scale LNG market, and that’s where I distinguish small scale from big scale. It has been demonstrated to the world how it can be done successfully and how it can be done in multiple different modes.

We have water-based bunkering, we have land-based bunkering, we’ve had truck to ship bunkering here. And now, we’re going to shave small sale export here and coming out of Jacksonville, once we can move forward with final investment decision on this project, and so when you think about small scale LNG industry, where is this happening more than Jacksonville?

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