Energy Transfer 2015 Annual Report Download - page 61

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crude oils and reinforcing the requirement to properly test, characterize, classify, and, if applicable, sufficiently degasify hazardous materials prior to and
during transportation. Much of the domestic crude oil received by our facilities, especially from the Bakken region, may be transported by railroad. If the
ability to transport crude oil by rail is disrupted because of accidents, weather interruptions, governmental regulation, congestion on rail lines, terrorism,
other third-party action or casualty or other events, then we could experience an interruption of supply or delivery or an increased cost of receiving crude oil,
and could experience a decline in volumes received. Recent railcar accidents in Quebec, Alabama, North Dakota, Pennsylvania and Virginia, in each case
involving trains carrying crude oil from the Bakken region, have led to increased legislative and regulatory scrutiny over the safety of transporting crude oil
by rail. In 2015, the DOT, through the PHMSA, issued a rule implementing new rail car standards and railroad operating procedures. Changing operating
practices, as well as new regulations on tank car standards and shipper classifications, could increase the time required to move crude oil from production
areas of facilities, increase the cost of rail transportation, and decrease the efficiency of transportation of crude oil by rail, any of which could materially
reduce the volume of crude oil received by rail and adversely affect our financial condition, results of operations, and cash flows.
LCL is dependent on project financing to fund the costs necessary to construct the liquefaction project. If project financing is unavailable to supply the
funding necessary to complete the liquefaction project, LCL may not be able to secure alternative funding and affirmative FID may not be achieved.
LCL, an entity owned 60% by ETE and 40% by ETP, is in the process of developing a liquefaction project in conjunction with BG Group plc (“BG”)
pursuant to a project development agreement entered into in September 2013. Pursuant to this agreement, each of LCL and BG are obligated to pay 50% of
the development expenses for the liquefaction project, subject to reimbursement by the other party if such party withdraws from the project prior to both
parties making a final investment decision (“FID”) to become irrevocably obligated to fully develop the project, subject to certain exceptions. Through
December 31, 2015, LCL had incurred $89 million of development costs associated with the liquefaction project that were funded by ETE and ETP, and ETE
and ETP have indicated that they intend to provide the funding necessary for the remaining development costs, but they have no obligation to do so. If ETE
and ETP are unwilling or unable to provide funding to LCL for their share of the remaining development costs, or if BG is unwilling or unable to provide
funding for its share of the remaining development costs, the liquefaction project could be delayed or cancelled.
The liquefaction project is subject to the right of each of LCL and BG to withdraw from the project in its sole discretion at any time prior to an affirmative
FID.
The project development agreement provides that either LCL or BG may withdraw from the liquefaction project at any time prior to each party making an
affirmative FID. LCL’s determination of whether to reach an affirmative FID is expected to be based upon a number of factors, including the expected cost to
construct the liquefaction facility, the expected revenue to be generated by LCL pursuant to the terms of the liquefaction services agreement anticipated to
be entered into between LCL and BG in connection with both parties reaching an affirmative FID, and the terms and conditions of the financing for the
construction of the liquefaction facility. BG’s determination of whether to reach an affirmative FID is expected be based on a number of factors, including the
expected tolling charges it would be required to pay under the terms of the liquefaction services agreement, the costs anticipated to be incurred by BG to
purchase natural gas for delivery to the liquefaction facility, the costs to transport natural gas to the liquefaction facility, the costs to operate the liquefaction
facility and the costs to transport LNG from the liquefaction facility to customers in foreign markets (particularly Europe and Asia) over the expected 25-year
term of the liquefaction services agreement. As the tolling charges payable to LCL under the liquefaction services agreement are anticipated to be based on a
rate of return formula tied to the construction costs and financing costs for the liquefaction facility, these costs are anticipated to also have a significant
bearing with respect to BG’s determination whether to reach an affirmative FID. As these costs fluctuate based on a variety of factors, including supply and
demand factors affecting the price of natural gas in the United States, supply and demand factors affecting the price of LNG in foreign markets, supply and
demand factors affecting the costs for construction services for large infrastructure projects in the United States, and general economic conditions, there can
be no assurance that both LCL and BG will reach an affirmative FID to construct the liquefaction facility.
The construction of the liquefaction project remains subject to further approvals and some approvals may be subject to further conditions, review and/or
revocation.
The liquefaction project remains subject to approvals and permits from the U.S. Army Corps of Engineers (“USACE”) for wetlands mitigation and permanent
and temporary marine dock modifications and dredging at the Lake Charles LNG facility. Furthermore, while a subsidiary of BG has received authorization
from the DOE to export LNG to non-FTA countries, the non-FTA authorization is subject to review, and the DOE may impose additional approval and permit
requirements in the future or revoke the non-FTA authorization should the DOE conclude that such export authorization is inconsistent with the public
interest. Certain of the permits and approvals must be obtained before construction on the liquefaction project can begin and are still under review by state
and federal authorities. We do not know whether or when any such approvals or permits can be obtained, or whether any existing or potential interventions or
other actions by third parties will interfere with its ability to obtain and maintain such permits
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