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Cheniere offers better terms to attract LNG customers

21 Jun 2017 18:50 (+01:00 GMT)
Cheniere offers better terms to attract LNG customers

Houston, 21 June (Argus) — Cheniere Energy is offering US liquefaction capacity for lower prices and shorter durations in a bid to attract customers amid an oversupplied market.

"To the extent we can grow the business, we will," Cheniere chief commercial officer Anatol Feygin told Argus today on the sidelines of the CWC LNG Americas Summit in Houston.

That means offering liquefaction capacity for less than the $3.50/mmBtu the Houston-based company previously secured to finance the LNG export terminal it is building in Corpus Christi, Texas. It also means offering take-or-pay contracts of less than 20 years, he said.

He declined to be more specific.

"Nobody feels worse than me" that Cheniere's current customers may pay more than future customers, he said.

All the contracts that Cheniere previously signed to finance its Sabine Pass LNG terminal in Louisiana and Corpus Christi are for 20 years, with possible extension periods. Sabine Pass customers agreed to pay liquefaction fees of $2.25-$3/mmBtu, with the earlier contracts having lower prices.

The customers have to pay those fees for 20 years whether they take LNG or not. If they want LNG, they would additionally pay Cheniere 115pc of the final Nymex Henry Hub settlement price for the month in which a cargo is scheduled.

Cheniere secured its existing contracts before oil prices fell steeply in mid-2014. Cheniere and other US LNG developers have not been able to sign long-term deals to finance multi-billion-dollar LNG export projects since the fall in oil prices. US export economics are based on a large differential between domestic gas prices and global oil prices. Most long-term Asian LNG contracts are linked to oil prices.

Cheniere is building five liquefaction trains at Sabine Pass at a cost of about $20bn and two trains at Corpus Christi at a cost of about $10bn. All the Corpus Christi customers agreed to a liquefaction fee of $3.50/mmBtu. They firms include Gas Natural Fenosa, Electricite de France, Woodside, Pertamina and, Endesa

Each train that Cheniere is building will have peak capacity of 5mn t/yr, equivalent to about 694mn cf/d of gas, and baseload capacity of 4.5mn t/yr, or 625mn cf/d of gas. Sabine Pass started exporting in February 2016 and is expected to be completed in 2019. Corpus Christi is scheduled to come on line in 2018-19.

US regulators have approved construction of a sixth train at Sabine Pass and a third at Corpus Christi, but Cheniere needs to sell adequate long-term capacity to finance each unit.

Feygin said the potential expansions at the Cheniere facilities would be able to deliver LNG to Asia at prices in the range of $7.50-$8.50/mmBtu, which would be the lowest in the world for new projects. Potential customers are reluctant to sign long-term deals in the current oversupplied market because spot prices are lower, he said.

Argus yesterday assessed the delivered price of spot LNG to northeast Asia in the second half of July at $5.52/mmBtu.

Such low prices are no likely to last beyond this decade, when the current supply glut is expected to recede, Feygin said. It takes about four years to build a liquefaction facility, so customers need to sign long-term deals soon to finance more capacity that will be needed, he said.

He declined to identify the most likely potential new customers, but pointed out that China and India are expected to have the largest LNG demand growth in the foreseeable future. No Chinese company has signed a long-term deal for US liquefaction capacity. India's state-owned Gail owns capacity at Sabine Pass and at the Cove Point LNG export project in Maryland scheduled to start operating late this year.