J.P. Morgan and Cheniere Energy Inc. have joined forces in the global liquefied natural gas (LNG) market in a deal that gives the gas and power trading house access to regasification capacity at Cheniere’s Sabine Pass terminal in Louisiana.
The investment banking arm of JPMorgan Chase & Co. gains capacity rights at Cheniere’s Sabine Pass LNG terminal, the largest in North America, as well as business opportunities originated through Houston-based Cheniere’s LNG marketing team. Cheniere is expected to benefit from J.P. Morgan’s client relationships, financial expertise and strong balance sheet.
“Working with Cheniere’s team dramatically enhances our ability to serve our energy clients around the world,” said Paul Posoli, J.P. Morgan head of global power, gas, coal and emissions. “This agreement complements our existing global gas business and further diversifies the offerings we can deliver across regions.”
J.P. Morgan sells about 4 Bcf/d of gas in North America, has capacity on more than 50 pipelines and holds about 40 Bcf of storage capacity, Posoli said. He told NGI J.P. Morgan is developing a business in Europe similar to what it has in the United States, having recently acquired the European gas and power business of Sempra Energy.
“I’d say it’s earlier stages, but we’re in the process of building out a very similar physical business [in Europe],” he said. “What we haven’t had is a presence in LNG, and the market’s changing rapidly. There’s a lot more liquefaction coming online, and LNG is becoming a very critical link between our North American business and our European business, and I’d say the Atlantic Basin and Asia.
“It’s becoming more obvious to us that trading North American gas and trading European gas independently from one another doesn’t make sense. Although five years ago the two really did trade independently from one another.”
According to a regulatory filing, Cheniere Marketing has agreed to develop and maintain commercial and trading opportunities in the LNG industry and present them exclusively to JPMorgan LNG Co (LNGCo). “In the event LNGCo declines to purchase an LNG cargo presented to it by Cheniere Marketing under the service agreement, Cheniere Marketing may pursue the opportunity on its own behalf or present it to third parties,” the filing states. LNGCo is to pay a fixed fee for Cheniere’s services and may pay additional fees.
The term of the agreement is two years, but it may be terminated by either party without penalty after one year.
Cheniere Marketing also will sell its LNG inventory in storage at Sabine Pass to LNGCo. At the end of the agreement period Cheniere Marketing may buy any LNG inventory held by LNGCo at Sabine Pass. Cheniere Marketing also agreed to surrender a portion of its storage and regasification capacity at Sabine Pass on a cargo-by-cargo basis in amounts required to handle cargoes bought by LNGCo under the services agreement.
Global LNG production capacity is expected to increase to approximately 37 Bcf/d this year, up from 16 Bcf/d in 2000, the companies said. Sabine Pass is able to send out 4 Bcf/d and has a storage capacity of 16.9 Bcfe.
“We believe this arrangement allows us to source LNG with the support of a strong balance sheet and to utilize our capacity at Sabine Pass and our network of relationships in the most effective way,” said Davis Thames, president of Cheniere Marketing. “The combination of our LNG assets and know-how and J.P. Morgan’s extensive global client franchise will enhance opportunities for both Cheniere and J.P. Morgan, enabling us to provide more services to our LNG suppliers and gas customers.”
Cheniere said it is pursuing related business opportunities both upstream and downstream of Sabine Pass.
Last year Cheniere received approval from the Federal Energy Regulatory Commission to modify Sabine Pass for re-export (see Daily GPI, June 2, 2009). Re-export of LNG cargoes is a means of taking advantage of inefficiencies in the LNG marketplace, Cheniere CEO Charif Souki told NGI last December (see Daily GPI, Dec. 14, 2009). “I think if you see an opportunity because there’s an inefficiency in the market you take it,” he said. However, he said he did not expect the re-export of cargoes to become commonplace or to continue for long in the United States.
Also last week GE Energy Financial Services said it plans to spend $150 million for a one-third interest in the Gulf LNG Clean Energy Project, which is under construction by El Paso Corp. in Mississippi (see Daily GPI, April 1).
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