Page 4 - NorthAmOil week 23

NorthAmOil COMMENTARY NorthAmOil
Cheniere pursues next phase of LNG growth
The second wave of US LNG projects is getting under way, amid increased global competition, write Anna Kachkova and Ed Reed
US
WHAT:
Cheniere is pushing ahead with expansion at Sabine Pass and signing innovative agreements at Corpus Christi.
WHY:
Forecasts suggest there may be an LNG shortage in the mid-2020s.
WHAT NEXT:
Too many projects piling into the LNG market may tip into oversupply.
CHENIERE Energy, the US’ leading LNG exporter, is taking additional steps to grow its business. The company operates two of the US’ four active LNG export terminals – Sabine Pass and Corpus Christi. Last week, Cheniere announced that it had made a nal investment decision (FID) on a sixth train at Sabine Pass in Louisiana. e company also noted that it had increased the run rate production guid- ance for each of its liquefaction trains to 4.7-5.0 million tpy of LNG, up from 4.4-4.9 million tpy previously.
Cheniere said in a June 3 statement that it had given Bechtel, the lead contractor on its liq- uefaction facilities, full notice to proceed with construction of Train 6. e company’s contract with Bechtel is worth US$2.5 billion. e unit is anticipated to enter service in 2023.
Cheniere’s subsidiary, Cheniere Partners, has entered into ve-year, US$1.5 billion sen- ior credit facilities with 29 banks and nancial institutions. e transaction, which closed on May 29, will be used to fund part of the con- struction of Train 6 and a third LNG berth, as well as necessary supporting infrastructure. e facilities include a US$750 million delayed draw term loan, and a US$750 million revolving credit facility, Cheniere added.
e FID was widely expected, a er the com- pany entered into an offtake agreement with Malaysia’s Petronas in December 2018 to sup- port Train 6. Another o ake deal, with com- modity trader Vitol, is also expected to support the unit, even though that agreement covered sales of LNG starting in 2018.
Pricing evolution
Cheniere also announced it had entered into a 15-year gas supply agreement (GSA) with Apache, with the nature of the deal indicating that the exporter could move away from its previous gas-pricing model. Under the GSA, a subsidiary, Cheniere Corpus Christi Liquefac- tion Stage III, will buy 140,000 million Btu (3.9 mcm) per day of gas from Apache’s operations in the Permian Basin. “Apache will receive an LNG
price, net of a xed liquefaction fee and certain costs incurred by Cheniere, for the natural gas delivered to Corpus Christi Stage III under this agreement,” Cheniere said in a statement. “ e LNG price is based on international LNG indices.”
This is a move away from the US bench- mark-linked model that Cheniere has relied on previously. The company has been selling LNG to its long-term buyers for about 115% of the Henry Hub price, plus a liquefaction fee of roughly US$3 per mmBtu (US$82.98 per 1,000 cubic metres). is insulates Cheniere against US gas price uctuations while covering lique- faction costs. But industry sources were cited by Reuters as saying that a deal to buy gas from Apache at an LNG-indexed price would give Cheniere the exibility to sell its output using di erent pricing structures. Such a move appears to make sense in an increasingly competitive global LNG market.
“LNG export projects are being delayed because of the limited demand for [Henry Hub]-indexed LNG supply ... limited but not non-existent,” one industry source told Reuters. “If US LNG projects can sell on other indices, then it will likely lead to an increase in US LNG exports in the long term.”
Cheniere’s president and CEO, Jack Fusco, said: “ is rst-of-its-kind long-term agreement
Apache said the agreement with Cheniere forms part of its long-term strategy to access new markets for gas produced from its Alpine High project.
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w w w . N E W S B A S E . c o m Week 23 13•June•2019