Shale Daily / NGI All News Access

First Deal Struck to Liquefy, Export Shale Gas

A newly signed contract for the liquefaction and export of domestically produced natural gas lends further credibility to the shale gas optimism that has swept the energy industry in recent years.

A unit of global liquefied natural gas (LNG) player BG Group has agreed to buy liquefied domestic natural gas from Cheniere Energy Partners LP's Sabine Pass Liquefaction LLC, marking the first sales contract for the company's U.S. Gulf Coast liquefaction project and the first for export of LNG from the Lower 48. The reservation charge to be paid to Cheniere is worth $8.2 billion over the 20-year life of the contract.

Cheniere Energy Partners owns 100% of the Sabine Pass LNG receiving terminal on the Sabine Pass Channel in western Cameron Parish, LA, and was the first to propose adding liquefaction capability to a U.S. regasification terminal to enable export of liquefied domestic gas, particularly that from shale plays.

BG Group's BG Gulf Coast LNG LLC has agreed to buy 3.5 million metric tons per year of LNG. Sabine Liquefaction is planning to develop the ability to produce 9 million metric tons per year in the first phase of its project. Last May Sabine Pass Liquefaction received authorization from the U.S. Department of Energy (DOE) to export up to 16 million metric tons of LNG for export to all countries with which trade is permissible.

"This agreement gives BG Group an early entrance to the U.S. gas export market," said BG Group's Martin Houston, executive vice president and managing director for Americas and global LNG. "Exports have become and are expected to remain economically attractive due to increases in the North American gas supply base resulting from, among other things, existing and future development of abundant shale gas reserves."

The contract news brought a big payday for Cheniere Energy Inc. shareholders. The company's stock soared more than 68% to close at $10.32 on 10 times the normal volume. Shares got as high as $10.95 intraday but didn't reach the 52-week high of $12.81. Last month Cheniere Energy Partners said it expected to net about $60 million from public offerings, some of which would be used to fund liquefaction development costs at Sabine Pass.

Cheniere spokesman Andrew Ware told NGI's Shale Daily a final investment decision on the project likely would not be made until Cheniere has contracted 7 million metric tons of the initial 9 million metric ton capacity. "We anticipate having more agreements in place in the near future," he said Wednesday.

In September analysts at Pan EurAsian Enterprises Inc. said, "...[A]t most, two LNG terminals to export domestically produced gas in the U.S. will be built in the U.S. over the next five years. However, unless the Marcellus Shale area supports one terminal, we believe that it is more likely [that] no export terminal will be built in the U.S."

On Wednesday the Pan EurAsian analysts said they had "been dubious that Cheniere would get anyone to sign up [for the project], and frankly, we are surprised. But, BG is a very astute operator who must see something we don't."

Cheniere Energy Partners said Sabine Pass already has many of the facilities needed for an export terminal, making the project more economic than greenfield liquefaction. The project would use its existing infrastructure, including five storage tanks and two berths at the Sabine Pass terminal, as well as Cheniere Energy Inc.'s 94-mile Creole Trail Pipeline, which would be reconfigured as a bi-directional system.

Via Creole Trail the liquefaction facilities could source gas from NGPL, Transco, Tennessee Gas Pipeline, Florida Gas as well as the Bridgeline intrastate system, Ware told NGI's Shale Daily. He said no gas supply agreements were in place for the project.

BG Group spokesman David Byford said Cheniere would be responsible for sourcing the natural gas needed to fulfill its commitment to supply LNG. As for where BG Group would take the cargoes, Byford would not speculate except to say cargoes could be sold into any country that has the appropriate Free Trade Agreement with the United States. "We don't comment on specific sales arrangements," he said.

BG Group is active in more than 25 countries on five continents.

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