Canada's ARC Resources reaches supply deal tied to Cheniere US LNG expansion

Canadian driller ARC Resources will supply natural gas to Cheniere Energy that the US exporter will use to produce LNG and then market those volumes to international customers, the company said May 4

ARC will get a netback, linked to S&P Global Commodity Insights' Platts JKM, the benchmark price for spot LNG delivered to Northeast Asia. Fixed LNG shipping costs and a fixed liquefaction fee for Cheniere will be deducted.

The 15-year agreement announced May 4 is similar to ones Cheniere has previously signed with US gas producers Apache and EOG Resources and Canadian producer Tourmaline. ARC, Canada's third-largest natural gas producer, with operations in the Montney in Alberta and northeast British Columbia, will sell approximately 140 MMcf/d of gas to Cheniere.

The LNG volumes associated with the ARC deal – approximately 850,000 mt/year – and the other agreements are tied to Cheniere's proposed 10 million mt/year midscale expansion at the site of its Corpus Christi Liquefaction terminal in Texas. Cheniere expects to make a final investment decision on the expansion project this summer. The ARC deal will take effect with the start of commercial operations of Train 7 of the Stage 3 project.

Combined, Cheniere now has 5.1 million mt/year of the Stage 3 expansion project's maximum expected capacity, or 51%, covered under long-term contracts that are specifically tied to that project, which is expected online by the end of 2025. Optionality at Corpus Christi Liquefaction and Cheniere's second export terminal, Sabine Pass Liquefaction in Louisiana, will allow Cheniere to cover some of the remaining capacity from other offtake commitments that Cheniere has secured.

Cheniere is bullish about US LNG growth potential, amid strong demand for its supplies in Europe and persistently high end-user prices, executives said during an investor conference call May 4. Despite elevated US Henry Hub prices, netbacks to the US Gulf Coast from Europe and Asia remain strong. Producers like ARC are eager to try to capture a portion of the margins. EQT, the biggest US upstream gas producer, said recently it may take an equity stake in an LNG export project, suggesting an even broader strategy than what has been seen over the past two years from other North American drillers.

Maintenance optimization and debottlenecking efforts will allow Cheniere to stretch capacity at its two current facilities and produce eight additional LNG cargoes in 2022, all of which are expected to be sold by Cheniere's marketing unit, which among other things handles spot volumes. Cheniere has additional real estate at its two terminal sites that could be used for further expansion after the Stage 3 midscale project is sanctioned, CEO Jack Fusco said on the investor call.