Cheniere eyes sanctioning new Texas LNG train next year

Cheniere Energy said it plans to make a positive investment decision next year on a planned third liquefaction train at the Corpus Christi LNG export terminal in Texas.

"I have a whiteboard in my office with a to-do list on it, and the only thing on that to-do list is to FID Corpus Christi train 3," Cheniere chief executive Jack Fusco said today on an earnings call. An FID refers to a final investment decision.

Cheniere is building two trains and associated facilities at Corpus Christi for $11bn. Each unit would have peak capacity of 5mn t/yr, equivalent to 694mn cf/d of gas, and baseload capacity of 4.5mn t/yr. The two-train project is 72pc complete and scheduled to start operating in 2019.

The Houston-based company has said it can build a similar-sized third train at a unit cost of $500-$600 per tonne of annual production, or about $2.25bn-$2.7bn for the baseload output. The third train would be cheaper by using existing infrastructure.

Cheniere signed some 20-year offtake deals for train 3 before oil prices dropped in mid-2014, but not enough to finance the unit. The company is negotiating with some large Asian utilities to sell more output from train 3, including potentially finalizing a preliminary agreement reached last week with China's state-owned CNPC.

Fusco said he is "guardedly optimistic" the CNPC agreement can be finalized early next year, but that deal is not necessary for Corpus Christi train 3 to move forward. Cheniere will soon ask the US Federal Energy Regulatory Commission for authorization to do some preliminary work for train 3 in anticipation of the investment decision, he added.

Six LNG export terminals are being built in the US that would have combined peak capacity of 73.5mn t/yr, including Cheniere's 25mn t/yr Sabine Pass LNG terminal in Louisiana. But it has been difficult for new US projects to sign customers since oil prices plummeted in mid-2014. The economics of US LNG exports are based on a wide differential between domestic gas prices and global oil prices, as most long-term Asian LNG contracts are linked to oil prices.

Cheniere is confident that it can secure more customers for Corpus Christi train 3 primarily because oil prices have started to climb, recently reaching the mid-$50s/barrel. Spot LNG prices and Asian demand have been higher than most analysts expected, but the spot market is not liquid enough to finance long-term deals, Fusco said.

"Our focus right now on Asia and CNPC is because it could be a real game-changer for the company as a whole," Fusco said. "So while we keep talking about Corpus 3, the demand forecast in Asia, and specifically in China, can double the size of our business. So we're happy taking smaller steps with Asian counterparties to get them comfortable with us and our ability. But the end goal for us is to radically transform our business."

Cheniere delivered six cargoes from Sabine Pass to Europe in the third quarter, but all of those went to premium southern European markets, indicating that buyers are willing to pay more than the netback price to northwestern European hubs, said Cheniere chief commercial officer Anatol Feygin.

Latin America and Asia received the majority of Sabine Pass shipments in the third quarter, and Mexico is expected to remain a strong market for Sabine Pass at least until the end of the year, Fegyin added.