Pickup in commercial talks boosts Cheniere's hopes on mid-scale LNG project

Cheniere Energy expects to make a "substantial dent" by the end of 2022 in building sufficient buyer support for a proposed mid-scale expansion at the site of its Texas liquefaction facility, Chief Commercial Officer Anatol Feygin said June 30 in an interview.

The comments during a S&P Global Platts Commodities Focus podcast are the most specific the biggest US LNG exporter has been on a time frame for commercializing the up to 11 million mt/year Stage 3 project since the start of the coronavirus pandemic in early 2020.

They reflect renewed talks that some operators and developers have been having with commodity traders, utilities and other end-users amid tightening global supplies and the strongest pricing levels for deliveries into Asia and Europe in years.

While Cheniere's time horizon for commercializing Stage 3 is a bit longer than recent estimates from Freeport LNG for its Train 4 expansion, Tellurian for its Driftwood LNG project and NextDecade for its Rio Grande LNG project, it has stuck mostly to the traditional strategy for selling new capacity that served it well for building Sabine Pass Liquefaction in Louisiana and Corpus Christi Liquefaction in Texas.

It also has been focused on securing buyers for excess capacity that it identified from its existing trains and pursuing initiatives to reduce its carbon footprint.

"We obviously find ourselves at the beginning of this year and throughout in a very tight market where prices today into Asia and into Europe are at levels that we frankly haven't seen in a decade-plus," Feygin said. "We've surpassed the economics that the industry saw post the Fukushima tragedy in March 2011, and that's happened in the shoulder period."

As a result, he said, " The commercial engagement, I think it is very fair to say, has really picked up steam, and we are quite optimistic over the coming 12-18 months to make a substantial dent in that Stage 3 commercialization."

Cheniere has not yet made a final investment decision on the mid-scale liquefaction expansion it has proposed to build. It has said that it would sanction the expansion only after signing additional commercial agreements and obtaining adequate financing. Cheniere, which also needs to secure an engineering, procurement, and construction contract for the project, signed agreements in 2019 with US gas producers Apache and EOG Resources to market a combined 1.7 million mt/year of LNG supplies from the Stage 3 expansion

In terms of Cheniere's corporate sustainability and climate-related efforts, the company is pursuing a program to quantify the life-cycle emissions of the LNG cargoes it produces. Cheniere views its role in the energy transition as a leader, given its size and full-service platform. It believes an all-of-the-above strategy that includes employing technologies like carbon capture and underground storage that have had mixed success in other sectors of the US energy industry is the right approach for LNG, Feygin said.

"There will be CCUS projects that are attractive and relatively feasible, and there will be CCUS projects that are science projects and require tremendous achievement in terms of technological advancement and economic improvement," he said. "So, we are of the view that we're not going to let the perfect be the enemy of the good."

Emissions transparency

He said the emissions transparency efforts are "a step on a long-term journey and long-term commitment to not just be the leader on this front for US LNG, where Cheniere of course is the largest exporter, but also for the world."

"It is only a starting point and it is a starting point that we are perfectly positioned to build on with our producer relationships, our relationships with our infrastructure partners and our downstream partners," Feygin said.

He cited a study Cheniere participated in with shipping partner GasLog and others to provide more definitive data on methane emissions from LNG-powered vessels.

Feygin also addressed Cheniere's challenges, opportunities, and views on M&A.

The biggest challenge, he said, is figuring out the right commercial solutions to crack a framework in which most of the supply that will come online in the next five to 10 years is already baked into industry estimates.

"No one is surprising the market with an additional 5 or 10 million tons," Feygin said. "The probability is that supply is actually going to surprise to the downside in the next couple of years."

Upstream and M&A

With that in mind, the growing economies in Asia present the biggest opportunity for Cheniere. It is also optimistic about LNG bunkering and LNG into Europe.

One thing Cheniere does not appear to be interested in anytime soon is a merger, major acquisition or expansion into the upstream, to produce some of the feedgas it uses at its liquefaction facilities.

"We don't see any strategic reason to be in the upstream business," Feygin said.

He said Cheniere also does not currently see any "compelling opportunity that would lead us down the path of M&A," though he added that the company's view is "not for a lack of looking and evaluating."