U.S. LNG FOR CHINA
FT - The first ever long-term contract to supply US liquefied natural gas to China has been signed by Texas-based Cheniere Energy, boosting the hopes for other companies positioning themselves to launch new export projects.
The 25-year deal with China National Petroleum Corporation means Cheniere has pulled ahead in the race to develop a new wave of US LNG export projects to come on stream in the 2020s. But it will also encourage other aspiring suppliers by showing that Chinese buyers can be persuaded to make long-term commitments.
China was the third-largest market for US LNG exports last year, after Mexico and South Korea, but until now the country has been buying spot cargoes rather than using the long-term contracts that exporters need to be able to finance new plants.
CNPC has contracted Cheniere to sell up to 1.2m tonnes of LNG a year. A portion of the deliveries will start this year, with the balance starting in 2023 and running through to 2043.
Michael Wortley, Cheniere's chief financial officer, said he thought CNPC had chosen his company as a supplier because it was a "credible solution" with a proven record of delivering LNG plants on time and on budget. Cheniere was the first company to begin exports of LNG from the Gulf of Mexico region of the US, starting shipments in 2016.
Gas imports to China have been soaring as Beijing attempts to shift its energy system away from coal, to fight air pollution, and the country is expected to become the world's top LNG importer by 2030.
Mr Wortley said that as demand continues to rise, "buyers don't want to find they need to fill a gap in their supplies in the 2020s".
The price of LNG has been very strong in Asia, even though there has been new supply coming on to the market from the Australian mega-projects Gorgon and Wheatstone. In the futures market, gas for delivery in Asia next month is trading at almost $10.50 per million British thermal units, compared to a benchmark US Henry Hub price of $2.60.
The CNPC contract is a further step forward for Cheniere in being able to commit to a new production train at its Corpus Christi LNG plant in Texas. It signed a contract for gas from the new train with EDP, the Portuguese utility group, back in 2014, and then one with commodity trader Trafigura last month. Cheniere hopes to take a decision before the end of 2018 to go ahead with the project, which would have a total capacity of 4.7m tonnes of LNG per year.
As with contracts that supported earlier investments in its export plants at Corpus Christi and Sabine Pass, Louisiana, Cheniere is selling the LNG to CNPC at a price linked to Henry Hub, with an additional fixed fee. Unlike with those earlier contracts, however, Cheniere is not disclosing the precise terms.
Companies including ExxonMobil, Royal Dutch Shell, the Energy Transfer group and Kinder Morgan, as well as several smaller players, are also looking at possible new LNG export projects in the Gulf of Mexico region.
The Cheniere deal is likely to be welcomed by the Trump administration, which has identified increased gas exports as a possible way to reduce the US goods trade deficit with China. Mr Wortley said the contract was a bilateral deal between two companies, not two governments, but the visit by President Donald Trump to China in November, and the support of President Xi Jinping of China, had been "helpful" in securing the deal.
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