Cheniere Energy Partners LP’s Sabine Pass Liquefaction LLC has entered into a liquefied natural gas (LNG) sale and purchase agreement (SPA) with Korea Gas Corp. (Kogas) under which Kogas has agreed to purchase 3.5 million tons per year of LNG upon the commencement of train three operations at its planned gas liquefaction facility in Louisiana.

Under the SPA, Kogas will purchase LNG on a freight on board basis for a price indexed to the Henry Hub plus a fixed component. LNG will be loaded onto Kogas vessels. The SPA has a term of 20 years commencing upon the date of first commercial delivery for train three, and an extension option of up to 10 years.

“The contract sales price will be equal to $3.00 plus 115% of the final settlement price for the New York Mercantile Exchange Henry Hub natural gas futures contract for the month in which the relevant cargo is scheduled,” Cheniere said in a regulatory filing, noting that “11.5% of the fixed portion of the contract sales price will be subject to annual adjustment for inflation.

“Kogas will have the right to suspend delivery of all cargoes of LNG scheduled in a month by a timely advance notice, in which case Kogas will continue to be obligated to pay the fixed portion of the contract sales price with respect to the quantity of LNG suspended but will forfeit its right to receive the suspended quantity.”

Deliveries from train three are expected as early as 2017. The SPA is subject to conditions, including the project receiving regulatory approvals and financing.

“South Korea relies on imports to satisfy nearly all of its natural gas consumption, which has approximately doubled over the previous decade,” according to a U.S. Energy Information Administration analysis updated last fall. “Domestic gas production is negligible and accounts for less than 2% of total consumption. South Korea does not have any international gas pipeline connections and must therefore import all gas via LNG tankers. As a result, although South Korea is not among the group of top gas-consuming nations, it is the second largest importer of LNG in the world after Japan.”

Kogas is the project’s fourth foundation customer, Cheniere said, noting that Sabine Pass has now sold 16 million metric tons per year capacity of the 18 being developed at the terminal.

“Kogas is a strong addition to our portfolio of customers as it is the largest LNG importer in the world and the dominant gas provider for the Republic of Korea, a nation that is soon to become a free trade nation with the U.S.” said Cheniere CEO Charif Souki.

A free trade agreement (FTA) with South Korea, which does not currently receive domestically produced natural gas from the United States, has been ratified by both the U.S. and South Korean legislatures but has not yet entered into force. Sabine Pass is one of several liquefaction and export projects that have received approval to export to FTA countries from the U.S. Department of Energy. It is the only project, so far, to receive approval for exports to non-FTA countries as well (see NGI, Jan. 23).

Kogas, incorporated by the Korean government in 1983 for the development, production and distribution of LNG, is the Republic of Korea’s dominant gas provider. It operates three LNG terminals and a nationwide pipeline network and imports LNG from around the world. Kogas has received the sovereign credit ratings of “A1” and “A” from Moody’s Investors Service and Standard & Poor’s. Kogas, which has invested in Horn River exploration and production activity, is among the partners of Royal Dutch Shell plc in considering LNG exports from Kitimat, BC (see NGI, Oct. 24, 2011).

Sabine Liquefaction previously entered into three LNG sale and purchase agreements: a deal with a unit of BG Group plc, which was recently expanded (see NGI, Jan. 30), one with Gas Natural Fenosa (see NGI, Nov. 28, 2011) and an agreement with Gail (India) Ltd. (see NGI, Dec. 19, 2011).

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