US gas supply deals in sight for major LNG offtakers

Ruth Liao

25-Feb-2015

Cheniere, which is positioning itself to become the one of the largest LNG exporters on a global basis by 2020, is also expected to become one of the largest natural gas buyers in the US, taking about six billion cubic feet (bcf), or 170 million cubic metres/day.

Cheniere’s trading subsidiary, Cheniere Marketing, expects as much as 7mtpa of LNG to be available on a short and mid-term basis from both the Sabine Pass and the greenfield Corpus Christi projects in Texas, assuming Sabine Pass Trains 1-6 and three trains from Corpus Christi are operational, according to an investor’s presentation submitted to the US Securities and Exchange Commission on 24 February.

Currently, forward production cargoes to be produced during the 2016-2018 ramp-up period are being sold by Cheniere Marketing.

Volumes sold so far have been based on one to two-year term deals based on a premium to the Henry Hub, according to Cheniere. No other details on exact buyers or terms were disclosed.

Sabine Pass trains 1-4, with capacity of about 18mpta, are currently under construction, with first LNG expected by December 2015.

How LNG export projects are able to mitigate interruptions on the US system is also important. Cheniere has secured firm pipeline transportation capacity of about 4.3bcf/day of deliverability into Sabine Pass, which represents more than 160% of the total load for the first four trains.

About half of the gas feedstock contracts have been fulfilled to provide for the daily load for the first four trains, according to Cheniere. Pricing has averaged the US Henry Hub futures price with a $0.10/MMBtu discount.

LNG projects jockey for US gas

Market sources in the US said gas supply deals are currently being offered at a deeper discount to Henry Hub, particularly from producers more exposed to Marcellus shale reserves, which includes areas from New York, Pennsylvania, Ohio, West Virginia, Kentucky and Tennessee.

One source said some producers were willing to offer discounts of up to $0.50/MMBtu to $1.00/MMBtu to Henry Hub on gas supplies, given that the gas sellers were eager to tie up long-term supply.

Gas supply contracts were also understood to be sought by the offtakers from the planned 13.2mtpa Freeport LNG project, with the exception of UK-based seller BP, which has the advantage of its own US gas trading portfolio.

Japanese utilities Osaka Gas and Chubu Electric, along with Japanese manufacturer Toshiba and South Korean company SK E&S have tolling agreements from Freeport LNG.

The tolling structure at the first three trains of the 14.95mtpa Cameron LNG facility has also made for separate feedgas supply agreements.

France-based GDF SUEZ and Japanese trading companies Mitsubishi and Mitsui each have a 4mtpa in long-term tolling capacity from Cameron LNG, with US-based utility and developer Sempra Energy taking the additional 2.95mtpa. The Cameron offtakers were understood to be seeking out gas supply deals for the next 12 months, according to sources in the US.

Gas supply from US producers was also heard to be sought from the eastern Canadian LNG projects proposed in Nova Scotia. The greenfield 8mtpa Bear Head LNG project, developed by Australian-based LNG Limited, and the proposed 10mtpa Goldboro project, backed by the Canadian company Pieridae Energy, remain in the permitting stage from both US and Canadian energy authorities. Ruth Liao

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