U.S. LNG FOR EUROPE
Cheniere Marketing–Cheniere Energy Inc.'s trading arm–would like to sell 2 million tons of LNG from Cheniere's Sabine Pass liquefaction facility, looking to place those volumes in Europe and other markets, said Ms. Helena Wisden, Senior Trading Manager, who offered a status report on the company's history and plans at an event organized by Natural Gas Europe in the European Parliament, part of the Interconnecting Europe series.
In a roundtable discussion entitled "U.S. natural gas in the European gas market–prospects and implications," Ms. Wisden said Cheniere had recently announced a deal with Engie for LNG cargoes to come into France from 2019 onwards, and shortly before that, Cheniere had completed a deal with EDF for LNG cargoes into Dunkirk.
"Both of those deals were slightly different for us, because they're based on European hub pricing, and that really reflects how the LNG market has evolved in the last couple of years: sort of general global economic slowdown has resulted in lower gas demand in most of the importing markets," said Ms. Wisden, who added that another key question affecting demand is when Japan will switch its nuclear plants back on–something that will send a lot of LNG to other markets.
"At the same time, there's a lot of production that's coming online in Australia," she continued, "and that will probably back out some of the gas produced in the Atlantic basin and in the Middle East that has been going over to Asia. So what we're really seeing in the next couple of years is a lower priced environment, certainly in the Atlantic basin markets, of Europe in particular."
Cheniere's model at the moment, she explained, is very much focused on Europe.
"We're interested in seeing more interconnected markets in Europe. We obviously can deliver very flexibly to any terminal; we're not bound into delivering to just one location, as you would be with a pipeline, and what we're really interested in doing is securing new markets, developing integrated projects possibly involving power plants as well, or floating re-gas infrastructure with a power plant behind it, a business model we've operated in Chile; we're looking at doing something similar in Croatia," she said.
Due to the global demand context, Ms. Wisden said Europe is a very interesting market at the moment for Cheniere, which seeks to develop its customers in the region.
Recalling that Cheniere originally opened an LNG import terminal in the U.S. in 2007 at a time when the shale gas revolution was taking off in America, it quickly became apparent, she said, that the U.S. didn't need to import LNG. "In the years since, we've been working to turn the terminal around to take shale gas or any other gas from the U.S. market, liquefy it and export it globally," she explained.
Ms. Wisden reported that Cheniere currently has five LNG trains under construction at the Sabine Pass terminal, the company's first facility in Louisiana. "We expect to have our first cargo loading in January, and the production will gradually ramp up until there are five trains producing–so a total of around 22.5 million tons of LNG will be exported from there by the end of this decade, 2019," she said.
Meanwhile, she said the company is developing another project involving two trains at a project in Corpus Christi, Texas.
"Both of these projects just take gas from the U.S. market," she explained. "We don't actually produce the gas ourselves, and if you look at the future reserves potential in the U.S., there's enough for at least 100+ years of domestic U.S. demand and exports. The scale of the reserves in the U.S. is not in doubt."
As to where the gas will go, to which market, and what now looks attractive to a seller of U.S. LNG, Ms. Wisden explained that Cheniere's business model is to have long-term contracts that underpin the construction of the LNG plant. She said for the first four trains, the company has two key European buyers: the UK's BG Group (soon to be part of Shell) and Spain's Gas Natural Fenosa.
She commented: "Spain is obviously not as well connected to Europe as some of the other import facilities, so how much of that will actually get into the wider European market really depends on whether they divert any of their shipments into other terminals."
If Cheniere were to entertain LNG deliveries to Lithuania's LNG terminal in Klaipeda in the next two to three years, Ms. Wisden was asked, what might the obstacles to the prospect might be, and how would geopolitics fits into the company's decision-making?
She answered: "As a U.S. exporter, the geopolitics is not really our area; that's much more a concern for buyers in Europe, particularly for those in the east. We are a commercial company looking to maximize the value of our asset.
"What we would support is the development of the market in region and the aggregation of demand," she continued, "because individual demand from Latvia, Lithuania and Estonia is fairly small on a global perspective to start with, and is shrinking, so in order for certain buyers to become more attractive to a large scale supplier, then some aggregation of demand would be good to see from our perspective."
Cheniere, she added, would like to see countries working together in such markets to create a scale of demand that becomes a liquid market of sorts. "At the moment, some more steps need to be taken to make that happen. We're happy to see the discussion between Lithuania and Latvia happening, because together there's more influence that the buyers can have when it comes to long-term supply negotiations, or even shorter term ones," she offered.
Getting straight to the point, Lithuanian MEP Antanas Guoga asked Ms. Wisden what Cheniere's current offer is on price in consideration of the market price.
Ms. Wisden said Cheniere's price in Europe is an National Balancing Point (NBP)-based price. "If you look at shipping from the Gulf of Mexico across to NBP markets in the UK, then you might have NBP plus an incremental amount for the extra shipping to get from the UK to Lithuania, so it would be NBP plus some cents," she explained.
Why is it so important for countries in the Baltics to have such options like US liquefied natural gas deliveries to Europe, asked session moderator Greta Tuckute of Geopolitika. Ms. Wisden answered, "Because in this case we would have a choice–we would not depend on a monopoly or one monopolizing supplier."
The phenomenon that is up and running, she said, is the Lithuanian LNG terminal at Klaipeda, which opens up various options for Lithuania, Latvia and Estonia, including a better positioning for contract negotiation, including on price, and more choice.
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