Energy companies based in Japan and India further increased their interests in the United States by signing tolling agreements for natural gas liquefaction services at Dominion’s proposed Cove Point liquefaction facility in Lusby, MD.
Dominion Cove Point LNG LP, a subsidiary of Richmond, VA-based Dominion, in filing for certification of export facilities at the Federal Energy Regulatory Commission (FERC) last week, disclosed it now has fully subscribed the offered marketed capacity at its proposed Cove Point export facility for 20 years.
The Calvert County, MD facility will have a marketed capacity of up to 5.75 million metric tons per annum (mtpa), of which only 4.6 mtpa is being marketed now. Dominion plans to transport on a firm basis 860,000 Dth/d of natural gas from existing pipeline interconnects with the Cove Point Pipeline to the LNG terminal.
Pacific Summit Energy LLC (PSE), a U.S. affiliate of Japanese trading company Sumitomo Corp.; and GAIL Global (USA) LNG LLC, a U.S. affiliate of GAIL (India) Ltd., have each contracted for half of the marketed capacity at the terminal for 20 years. The Sumitomo agreement is linked to a Henry Hub price index.
Additionally, Sumitomo has agreements to serve Tokyo Gas Co. and Kansai Electric Power Co. Inc. GAIL is the largest natural gas processing and distribution company in India.
Sumitomo holds assets and is involved in three shale gas/tight oil operations in the Unites States, and also, through PSE, operates a gas trading business in the United States. Once the Cove Point facility is operational, it will enable Sumitomo to be involved in all gas-related business segments across the value chain from shale gas upstream development, natural gas aggregation, transportation and liquefaction, to LNG export, the companies said.
Tokyo Gas is seeking to diversify supplies of energy and other commodities, including LNG drawing on unconventional gas sources. The company sees expanding its overseas LNG value chain as a means of reducing commodity costs.
Tokyo Gas has joined Tokyo Electric Power Co. (TEPCO) in linking the price of LNG to prices at the Henry Hub. Last February TEPCO struck its first-ever Henry-linked LNG contract (see NGI, Feb. 11).
“Japan and India are important allies and trading partners of the United States that are in need of secure sources of natural gas, and Sumitomo and GAIL are high-quality companies working to meet those needs,” said Dominion CEO Thomas F. Farrell. “We believe the agreements we have signed serve very important economic goals for all three nations.”
The contracts come amid increasing discontent among Asian customers at the high prices they must pay for LNG when prices are linked to those of oil, as has been customary in Asian markets (see NGI, Oct. 15, 2012). Japanese interests said last week that they plan to launch a futures contract for LNG by Spring 2015, and the country been lobbying the U.S. government to expedite the approval of LNG exports to non-free trade agreement (FTA) nations (see NGI, March 4).
“Asian buyers — in particular, the north-Asian utilities — have always paid a premium to ensure fuel supply certainty and security. As such, they have also committed to invest equity directly in LNG projects — as evident from various Australian LNG projects in operation or under development,” Fitch Ratings said in a newly published note on Australian LNG projects.
Meanwhile, Asian interests continue to expand their energy holdings in North America. Last month, Japan Petroleum Exploration (Japex) announced an agreement to take a 10% stake in the Western Canada natural gas development and production project and associated pipeline and liquefied natural gas (LNG) export projects of Progress Energy Canada Ltd. (see NGI, March 11).
“LNG continues to serve as an attractive energy source to companies and governments in Europe and Asia. For instance, in Japan, natural gas can cost in upwards of $20 per MMBtu,” wrote U.S. Rep. Charles Boustany (R-LA) in The Hill‘s Congress Blog on Tuesday. “Compare that to $3-4/MMBtu here in the United States. Unlike other commodities like oil or gold, there is no central pricing system with natural gas. Therefore, the international price of the commodity continues to fluctuate depending on the market one shops.”
While North American LNG liquefaction and export capacity is in planning/development, Fitch said improvement in the U.S. economy, and a consequent increase in domestic gas demand, could serve to narrow the arbitrage opportunity of shipping liquefied gas to Asia. “The availability of U.S. exports to meet demand across non-FTA Asian countries may also be limited due to geopolitical considerations,” the ratings agency said.
Dominion has asked FERC to act on its construction application by February 2014 so that it can place the export facilities into service by mid-2017. The company has received permission from the U.S. Department of Energy to act as an agent for LNG exports to FTA countries. It is awaiting action on its application to export to non-FTA countries.
The customers also have signed 20-year precedent agreements for first transportation service on the associated 88-mile Cove Point pipeline, which connects the facilities to a nexus of interstate natural gas pipelines in northern Virginia. The customers would procure gas and deliver it to the Cove Point pipeline. While the gas liquefied at Cove Point may be sourced from a wide variety of areas, Farrell said Cove Point, located on the Chesapeake Bay, offers direct access to the Marcellus and Utica shales, two of the most prolific natural gas basins in North America.
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