Freeport LNG Was Not Advised Against Inviting Chinese Investors

Maritime Activity Reports, Inc.

May 16, 2015

Michael Smith, chief executive Photo Freeport LNG

Michael Smith, chief executive Photo Freeport LNG


The head of Freeport LNG on Friday said that the U.S. Department of Energy did not advise against inviting Chinese investment in the company's Texas export plant, backing down from contradictory claims made on Thursday.

Michael Smith, the chief executive of privately-owned Freeport LNG, which is building a plant to export liquefied natural gas to Asia from 2018, said he misspoke on Thursday when during an interview with Reuters he said the DOE had warned Freeport against Chinese investment in the project for political reasons.

The DOE "in no way" advised Freeport LNG on what customers, or sources of foreign investment, it should choose, Smith said.

"I regret having inaccurately described the DOE as having advised us as such," he said.

Smith on Thursday said the advice from the Department of Energy had lead him to turn down Chinese buyers of LNG.

"We were advised by the DOE to be careful who our customers were, because this is very political," he said in the interview on Thursday, calling the prospect of Chinese interest in a major U.S. export project as "a political hot potato we couldn't take the risk on."

The reason for Smith altering his statement was not clear and he was not immediately available for further comment Friday.

A DOE spokeswoman said on Friday that it did not advise Freeport against sending LNG to Chinese customers or inviting Chinese investment.

Customers from across the world have signed up to buy future shipments of U.S. LNG. Some customers have taken equity stakes in the projects, the first of which is expected to start up later this year.

However, despite forecasts of growing gas demand in China, and U.S. projects expected to begin exporting to Asia beginning this year, no Chinese companies have signed up for U.S. exports directly. Some U.S. LNG will end up on Chinese shores, but only through secondary deals.

Attracting Chinese lenders would likely have meant Chinese companies acquiring a stake in the export project, Smith told Reuters on Thursday. Chinese equity in the project would almost certainly have led to exports to China.

"You could potentially get into the position of Chinese ownership of U.S. LNG," Smith said on Thursday. "The DOE said the last thing you guys want is having a bunch of (U.S.) senators saying our gas is going to China." 

(Reporting By Edward McAllister; Editing by Diane Craft)

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