UPDATE: Shell, Kinder Morgan Strike Deal To Export LNG From U.S.

(Updates with additional background)

--Shell, Kinder Morgan unit partner up to export 350 million cubic feet of gas per day from Georgia terminal

--Some government permits, final financial approvals pending

--Move adds to efforts to capitalize on U.S. cheap natural gas

By Angel Gonzalez

HOUSTON--Royal Dutch Shell PLC (RDSB.LN) has struck a deal with a unit of U.S. pipeline giant Kinder Morgan to export liquefied natural gas from an existing import terminal near Savannah, Ga., the companies said Monday.

The deal adds to energy-sector efforts to capitalize on North America's newly found abundance of natural gas from shale, and comes in the wake of a recent report commissioned by the U.S. Department of Energy that came out in favor of LNG exports.

Exxon Mobil Corp. (XOM) last year announced plans to turn an import terminal in Texas into a facility that can also export, and Chevron Corp. (CVX) last month partnered with Apache Corp. (APA) to liquefy and export natural gas out of western Canada. Anglo-Dutch giant Shell is also working on a competing Western Canada LNG export project.

The Georgia export project would need U.S. permission to export to countries with which the U.S. doesn't have free-trade agreements, and the companies must finalize investment decisions. But due to Shell's deep pockets and its experience in the LNG business, the effort could stand out amid 20 or so different projects awaiting for permits to sell LNG to non-FTA countries. So far only one project, Cheniere Energy Inc.'s (LNG) Louisiana terminal, is authorized for exports and is under construction.

Shell and Houston-based Kinder Morgan said that they would seek to modify El Paso Pipeline Partners LP's (EPB) Elba Express Pipeline and the Elba Island LNG Terminal to move natural gas to the terminal, liquefy it and ship it. El Paso, a Kinder Morgan unit, will own 51% of the partnership and run the facility, and Shell will own 49% and have rights to 100% of the liquefaction capacity of the terminal. The project is expected to be able to ship 350 million cubic feet of gas per day.

"This project will facilitate further development of the abundant natural gas resources in the United States and will be a positive factor in the overall balance of trade between the U.S. and other countries," said Kinder Morgan Chief Executive Richard Kinder in a statement.

The move to export natural gas from the U.S. underscores how the technology to exploit shale fields has upturned the once dimming American oil and gas industry.

As recently as a decade ago, companies that anticipated a natural gas crunch due to declining domestic production were spending billions in LNG import terminals to bring the commodity from abroad. Now the rush is on to sell the fuel to markets in Europe and Asia--a strategy that could offer U.S. producers a way out of a domestic market glut, and that the recent DOE-commissioned study said wouldn't dramatically affect the price of natural gas here.

Some U.S. manufacturers that rely on cheap natural gas, such as Dow Chemical Co. (DOW), have come out against unfettered exports of the commodity, because they say selling too much of the fuel abroad might result in high domestic prices.

Kinder Morgan, a key player in the U.S. energy sector, owns thousands of miles of pipelines and other energy infrastructure.

Its publicly traded companies include Kinder Morgan, Inc. (KMI), Kinder Morgan Energy Partners, LP (KMP), Kinder Morgan Management LLC (KMR) and El Paso Pipeline Partners.

Write to Angel Gonzalez at [e-mail]

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