Freeport LNG approved for $178M tax incentive

Houston-based Freeport LNG Development LP has secured approval for a large Texas tax incentive supporting a $2.4 billion project to build its fourth liquefied natural gas unit — called a train — at its Quintana Island facility.

Freeport LNG has gotten the Texas comptroller's permission for a Chapter 313 tax abatement worth about $178 million to the company over the 10-year lifetime of the agreement, according to public documents.

Chapter 313 of the Texas Tax Code allows school districts to make abatement deals with the owners behind certain industrial projects, including manufacturing facilities like this one. In this case, Brazosport Independent School District would limit the taxable value of that investment to $30 million.

All Chapter 313 agreements must be approved by the Texas comptroller, who must decide that the incentives are a determining factor for the project. Because of the way the Texas school funding formula works, school districts generally don’t face individual financial risk for accepting Chapter 313 deals, whether or not the project would have been built otherwise. That risk is spread out to broader state education funding instead. The Texas Legislature did not advance a bill that would have extended the Chapter 313 incentives program by two years, so the program is slated to expire in December 2022.

If built as described in the documents, the facility would start construction in January 2022 and begin commercial operations four years later. That timeline assumes the regulatory process proceeds smoothly and the project is able to secure financing and commercial support.

The project would require 1,000 workers during peak construction and create 55 new jobs once it enters service. The fourth train would add 5 million tons of annual LNG export capacity to the facility, bringing the total to more than 20 million tons per year, according to the documents.

The fourth train would be adjacent to the company’s three existing trains in Quintana, near Freeport south of Houston.

Freeport LNG has already started shipping from its existing trains at the site and raised some financing for the fourth train back in 2019. Freeport LNG CEO Michael Smith spoke optimistically about U.S. LNG’s position in the global market earlier this year at IHS Markit’s CERAWeek conference.

“Last year was a very unusual year,” Smith said. “It was a year of feast and famine.”