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LNG Agreements to Provide Access, Marketing Services

Russia's Houston-based Gazprom Marketing & Trading USA (GM&T USA) and Norway's Statoil ASA said last week they are finalizing agreements to allow Gazprom to import liquefied natural gas (LNG) to the regasification terminal at Cove Point, MD, where Statoil holds capacity. Also last week, Barclays Capital and Excelerate Energy LLC said they have agreed for Barclays to market Excelerate's LNG cargoes arriving at its Northeast Gateway deepwater port. Barclays also will provide optimization and hedging services as part of what the firm said is its new Barclays Capital LNG Services division.

Under the contemplated Gazprom-Statoil arrangement, GM&T USA would receive access to 50 MMcf/d of regasification capacity at Cove Point starting in 2010. In addition, GM&T USA would receive long-term access to 200 MMcf/d of regasification capacity at Cove Point for 18-20 years. GM&T USA would use the capacity to import LNG purchased from Gazprom Group's worldwide portfolio of supplies, it said. Both agreements include the release to GM&T USA of takeaway Cove Point Expansion pipeline capacity. The companies said they expect to finalize the agreements by the first quarter.

"The regasification agreements with Statoil will enable GM&T USA to import significant volumes of LNG purchased from Russia and other sources, both short and long term, and will provide a firm foundation for our long-term LNG supply strategy. Our gas purchase agreement enables us to strengthen our North American marketing and trading operation, which we launched on Oct. 1 [see NGI, Oct. 5], and provides us with gas supplies in areas of strategic importance," said John Hattenberger, president of GM&T USA.

In October Hattenberger identified the United States as a "gigantic gateway" for global LNG trade and added that the "door open to the U.S. LNG market is bigger than it has ever been" (see NGI, Oct. 19).

GM&T USA would also purchase gas from Statoil at various trading hubs in the U.S. This agreement, which commenced on Nov. 1, includes a gas volume of 100 MMcf/d and would last more than five years.

Additionally, Statoil would purchase, under a 20-year agreement, 200 MMcf/d of LNG from Gazprom Group's LNG supplies for delivery in international waters to Statoil for regasification at Cove Point.

At the beginning of this year the sendout capacity of the Cove Point terminal was increased to 1.8 Bcf/d from 1 Bcf/d, and storage capacity at the terminal was doubled to 14.6 Bcf (see NGI, Jan. 12). Richmond, VA-based Dominion Resources and Statoil broke ground for the expansion in 2006 (see NGI, Oct. 9, 2006).

"The agreement is an important step in Statoil's efforts to ensure supply for our LNG-import and regas capacity at Cove Point," said Irene Rummelhoff, Statoil senior vice president for international gas development. "It further underlines our ability to develop our gas business in the U.S., where we over a relatively short time have built a position in upstream conventional production, shale gas and the LNG import terminal [at] Cove Point. It is also an important broadening of the successful commercial relationship between the companies in the Gazprom Group and Statoil."

GM&T USA has made other recent inroads into the North American natural gas market. Earlier this fall the company jointly announced with France's EDF Trading an agreement to swap 50 MMcf/d of natural gas for the next five years between the United States and United Kingdom markets (see NGI, Oct. 26).

In the Barclays-Excelerate deal, the companies have agreed for Barclays to also provide optimization and hedging services as part of the new Barclays Capital LNG Services division. The investment banking division of Barclays Bank PLC said it will provide Excelerate with fixed-price hedging mechanisms. Additional services include taking physical delivery, transport and optimization of cargoes through profit-sharing by the parties.

"This agreement links the trading and risk management expertise of Barclays Capital with the LNG marketing expertise and industry-leading innovation of Excelerate Energy," said Henry Weitzner, head of U.S. natural gas and power trading for Barclays Capital. "By providing customized services to the client, we help them offset risk while enabling attractive pricing for both the natural gas seller and buyer."

Excelerate's technology allows LNG to be regasified while onboard the LNG ship. The Northeast Gateway facility entered operation in spring 2008 (see NGI, May 26, 2008). It consists of two submerged buoys that attach to the ships to offload regasified LNG and send it into a subsea pipeline system.

"We're pleased to be partnering with Barclays Capital in developing new strategies for optimizing our cargoes in the Northeast," said Andree Stracke, Excelerate chief commercial officer. "The solutions they are providing give us liquidity and flexibility in a volatile trading environment. As the Northeast market is one of the most valuable in the Atlantic, this agreement provides better price stability for ourselves and our customers in the region."

Barclays Capital LNG Services was launched with the Excelerate transaction. "With increasing globalization in gas markets and renewed emphasis on the Atlantic basin for LNG over the last year, there is clearly a heightened role for the types of services that Barclays Capital can offer the LNG community," said Jonathan Whitehead, Barclays Capital head of commodity sales and structuring in Europe, Middle East and Africa.

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