Cheniere to focus on DES LNG sales to bring in smaller buyers

US LNG seller Cheniere is shifting its LNG sales strategy towards delivered-ex-ship (DES) contracts in order to supply buyers without access to shipping capacity, Meg Gentle, president of Cheniere Marketing told ICIS.

Although the US company has contracted 87% of its LNG as free-on-board (FOB), its future contracts will more likely be DES, Gentle said on the sidelines of the Flame 2016 conference in Amsterdam on Tuesday.

“New LNG markets are smaller and smaller. We will be supplying floating storage and regasification units (FSRUs) which want LNG for power plants – and these buyers do not have their own ships.”

Cheniere envisions supplying LNG to countries investing in renewable power which also need gas to even out fluctuations in renewable supply. The variation in LNG demand will be reflected in the DES contract.

“We will write flexible contracts that allow us to dial up and dial down the supply of LNG to these users,” said Gentle.

The move comes at a time of global LNG oversupply and follows several agreements made by Asian contract buyers of US FOB to swap volumes with portfolio sellers to reduce their direct exposure to the US and to shipping. A common theme from sellers recently has been the seach for new buyers.

In line with the trend for destination free US supply agreed in recent years,the operator of the recently-started US Sabine Pass liquefaction plant signed most of its contracts on an FOB basis. As a relatively small company starting out in LNG, FOB contracts were more reassuring to stakeholders.

“Our investors preferred us not to get into shipping but focus on one thing at a time – so we executed FOB contracts,” said Gentle.

However, Gentle clarified that Cheniere would still write FOB contracts if the customer demanded it.

Emerging markets for LNG are becoming smaller, Gentle said in the course of the conference. This goes hand in hand with the development of the FSRU.

“An LNG terminal requires there to be 1m-5m tonnes of LNG each year to make financial sense, whereas an FSRU needs only 0.5m tonnes,” said Gentle.

These small markets will give the global LNG market a layer of stability to function as a traded market, said Gentle.

Shipping for train 2

Cheniere will export around eight commissioning cargoes from its second LNG train at Sabine Pass, said Gentle. The company recently began commissioning on its second LNG train with full operations expected by September 2016.

Cheniere chartered three vessels for the commissioning of its first LNG train at Sabine Pass. The company will look to charter many more LNG vessels by 2017, Gentle added.

Further ahead, Cheniere has yet to fully contract volumes from Sabine Pass train 6 which received regulatory approvals last year.

For Cheniere’s 13.5mtpa Corpus Christi project, marketing efforts continue on train 3. josie.shillito@icis.com