Cheniere signs gas deals linked to spot LNG with U.S. shale producer
U.S. liquefied natural gas (LNG) producer Cheniere Energy has signed long-term gas supply deals with shale producer EOG Resources, with some of the gas tied to Asian spot LNG prices in the second instance of such a link.
Cheniere typically buys natural gas using a price mechanism linked to a U.S. gas benchmark, but in a June deal with Apache Corp, it signed its first supply agreement tied to spot LNG prices. The EOG deals show an increasing willingness from upstream U.S. gas producers to take on LNG price risk.
“With U.S. producers flaring export-sized quantities of gas in the Permian alone, there is a push to find any market outlet, even if it entails taking on some spot LNG price risk,” said Saul Kavonic, an analyst with Credit Suisse.
Cheniere said on Monday its subsidiaries Corpus Christi Liquefaction and Cheniere Corpus Christi Liquefaction Stage III have signed long-term gas supply agreements with EOG to buy gas for 15 years starting from early 2020.
The total quantity will start at 140,000 million British thermal units (mmBtu) per day, or about 0.85 million tonnes a year, and increase to 440,000 mmBtu per day, the company said.
The LNG produced from the initial 140,000 mmBtu per day of gas supply will be owned and marketed by Cheniere, with its gas purchase price linked to Platts’ Japan Korea Marker (JKM), Cheniere said.
Platts’ JKM index is fast becoming Asia’s spot LNG benchmark price. The move towards an LNG price link will give Cheniere more flexibility in selling LNG on a price structure that would likely be more attractive to Asian buyers.
“If U.S. producers are willing to take on the long-term LNG price basis risk, we could see U.S. LNG more able to compete in the Asian LNG market under traditional spot and oil-linked price structures,” Kavonic said.
Cheniere has not said on what basis it would be marketing the LNG produced from the JKM-linked gas. For the second part of the gas deal, Cheniere will buy gas from EOG at prices indexed to the Henry Hub benchmark.
“Adding gas sales agreements linked to LNG prices supports EOG’s portfolio approach to marketing our growing production of low-cost natural gas,” said Lance Terveen, senior vice president of Marketing at EOG in a statement.
Cheniere typically buys U.S. gas to use as feedstock for its two LNG plants in Texas and Louisiana and sells LNG to long-term buyers on a Henry Hub gas price basis plus a liquefaction fee.
This formula protects Cheniere from fluctuating U.S. gas prices and covers its cost to transform gas into LNG through the liquefaction fee.
Source: Reuters (Reporting by Jessica Jaganathan; Editing by Tom Hogue)