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Cheniere Selling LNG to EDF at European Spot Prices

A unit of Cheniere Energy Inc. has struck what is thought to be the first U.S. liquefied natural gas (LNG) supply deal linked to European spot prices, implying confidence in the staying power of low U.S. gas prices, analysts said.

Subsidiary Cheniere Marketing International LLP entered into sales arrangements with Electricite de France S.A. (EDF) for the delivery of LNG cargoes on an ex-ship basis (DES) from the Sabine Pass LNG terminal to the Dunkerque LNG terminal in France. The agreement covers up to 26 cargoes, or up to about 100 million MMBtu, through 2018.

The sales price is linked to the Dutch Title Transfer index (TTF), a natural gas pricing index in continental Europe.

"This is a significant deal for a number of reasons," analysts at Tudor, Pickering, Holt & Co. (TPH) said in a Thursday morning note. "It is, we believe, the first U.S. LNG deal that is linked to European spot prices. It implies that Cheniere thinks it can make money at current European gas futures prices over the next few years of about $7/Mcf and that U.S. gas prices will stay low."

Volumes will be sourced from Cheniere Marketing's LNG supply portfolio, which includes rights under a sale and purchase agreement (SPA) with Sabine Pass Liquefaction LLC to purchase any LNG produced from Sabine Pass in excess of that required for other customers. The Sabine Pass terminal is expected to be online by the end of the year.

Cheniere Marketing has a similar SPA with Corpus Christi Liquefaction LLC for LNG produced from Cheniere's Corpus Christi liquefaction project. On a combined basis, Cheniere Marketing's LNG portfolio is expected to have about 9 million tonnes per annum (mtpa) of LNG available from the nine liquefaction trains being developed at the Sabine Pass terminal in Louisiana and the Corpus Christi terminal in Texas.

The company has also sold 42 cargoes to date with delivery expected from Sabine Pass in the 2016-2018 period. The majority of these cargoes were sold to customers on a DES basis whereby Cheniere Marketing will use its chartered vessels to deliver the LNG to the requested terminal. The sales price for these 42 cargoes is based on an applicable Henry Hub index price plus a fixed fee. In total, Cheniere Marketing has executed agreements for the sale of up to 68 cargoes, or up to about 250 million MMBtu, to buyers in Europe and Asia through 2018 (see Daily GPIJune 11).

Cheniere Marketing recently announced the sale of 0.6 mtpa of LNG under a 20-year SPA with Chile's Central El Campesino, which is expected to be delivered from Corpus Christi (see Daily GPIJuly 31). This deal is indexed to Henry Hub.

TPH also said the EDF deal suggests that Cheniere has confidence in the strength of European gas prices, even with the expectation of new LNG liquefaction capacity coming online, particularly in Australia and the United States from this year through 2018. Implications are negative for non-U.S. liquefaction that hopes to compete, TPH said.

Earlier this month, activist investor Carl Icahn disclosed the acquisition of 8.2% of outstanding Cheniere Energy shares (see Daily GPI,Aug. 7).

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