Houston, often called the energy capital of the world, served as a fitting backdrop for Cheniere Energy Inc. to announce a long-term deal to tap Permian Basin natural gas for a planned expansion at its Corpus Christi liquefied natural gas (LNG) terminal. Freeport LNG signed a deal of its own with Redwood Markets Inc., launching an online storefront to sell cargoes ahead of the peak winter season.
Ahead of opening day of Gastech 2019, Cheniere announced that, through its subsidiaries, it had entered into long-term supply agreements with EOG Resources Inc. for a total of 440,000 MMBtu/d.
Under the deals, EOG has agreed to sell natural gas to Cheniere over 15 years beginning in early 2020, with initial supplies of 140,000 MMBtu/d, or about 0.85 million metric tons/year (mmty), that would go into the production of LNG to be owned and marketed by Cheniere.
EOG would receive a price based on the Japan Korea Marker. The remaining 300,000 MMBtu/d would be sold by EOG to Cheniere at a price indexed to Henry Hub.
During Gastech’s opening ceremony on Tuesday, Cheniere CEO Jack Fusco said the integrated production marketing (IPM) transaction continues the pioneering company’s “proven track record of commercial innovation.” The company chief touted Cheniere’s ability “to connect Permian supplies to global LNG markets while enabling new liquefaction to be built.”
It is the second IPM deal that Cheniere has inked. In June, the LNG developer announced a similar transaction with Apache Corp. in which the producer agreed to sell 140,000 MMBtu of gas priced at international LNG indices to support Corpus Christi Stage 3.
The IPM commercial structure “leverages the company’s world-scale infrastructure platform and capabilities in Corpus Christi, offering domestic natural gas producers efficient access to global LNG prices and long-term flow assurance,” while providing Cheniere with reliable delivery of natural gas and commercial support for growth, according to Cheniere senior VP of gas supply Corey Grindal.
Alex Munton, principal LNG analyst at Wood Mackenzie, said the new deal “solidifies the appetite for U.S. producers to participate in supporting development of US LNG exports, following their notable absence in the first wave.”
EOG over the last five years has become one of the top unconventional producers in the world, according to research by Rystad Energy. During the second quarter, the Houston-based producer reported 10% year/year growth in natural gas volumes, contributing to total company production growth of 16 percent.
Wood Mackenzie forecasts EOG’s working interest gas production will reach nearly 3 Bcf/d by 2025. The LNG-priced component of this deal represents only about 5% of that portfolio.
Adding gas sales agreements linked to LNG prices supports EOG’s portfolio approach to marketing its growing production of low-cost natural gas, according to EOG”s D. Lance Terveen, senior VP of marketing. “These agreements further diversify our access to customers across multiple end markets in order to maximize our natural gas price realizations.”
EOG is among a select group of producers that can support these kinds of deals, according to Wood Makenzie. Of the largest companies that represent about 75% of production, only 10 U.S. independents are investment grade, and they represent less than 20% of total Lower 48 production in 2025.
“Majors add another 15% of production and are more likely to do a deal to facilitate projects supporting their own LNG portfolios,” Munton said.
A portion of the Cheniere transaction is subject to certain conditions, including a positive final investment decision on the Corpus Christi Stage III project, which would include up to seven midscale liquefaction trains with a total expected aggregate nominal production capacity of approximately 9.5 mmty. The project received a positive environmental assessment from the Federal Energy Regulatory Commission in March and is expected to receive all remaining regulatory approvals by the end of the year.
Freeport LNG, with one production unit lifting its first commissioning cargo earlier this month and two others under construction, will be able to sell cargoes in a virtual private storefront launching this November in partnership with Redwood Markets Inc.
Under the deal, the Freeport Private Storefront enables the Houston-based developer, as the host, to negotiate and match physical, bilateral LNG transactions with potential off-takers in a variety of online trading formats with multiple options for transparency. The private storefront is aimed at bringing efficiency of online trading to the buyer or seller without losing the direct, private connection between the respective parties.
“The number of participants in the global LNG market place has increased substantially over the last decade. The Freeport LNG storefront will streamline interactions,” Freeport LNG COO Hugh Urbantke said.
The storefront will also allow the company to “efficiently and transparently” provide counterparties direct access to Freeport LNG’s spot cargoes. “The U.S. shale gas revolution brought about massive changes for Freeport LNG” and now there are online commodity trading platforms “exclusively tailored for LNG as another disruptive technology that needs to be adopted early on,” Urbantke said.
Redwood Markets launched its online trading platform, Redwood Marketplace, in April 2018 after recognizing the need for a trusted place for LNG transactions to be executed. “LNG is a commodity that is logistically so complicated that traditional execution on screen doesn’t work,” Redwood President Ajay Batra told NGI shortly after the exchange’s launch.
At the time, the online platform was intended primarily for contracting spot, short, medium and long-term transactions. The private storefronts are a new addition to the Redwood Marketplace designed to address the evolution of the physical LNG market.
“By encouraging buyers and sellers to use the same trading formats available in the open-access markets, the hosts of private storefronts can help bring liquidity to their trading requirements and, in time, to the broader, open-access markets,” Batra said.