China's Foran Energy seals expanded LNG deal with Cheniere for 6 mil mt over 20 years

China's local government-owned city gas distributor Foran Energy signed a legally binding 20-year LNG sales and purchase agreement with US LNG supplier Cheniere Marketing International on Nov. 24, the company said on its official social media, expanding the size and duration of a previous preliminary agreement.

The SPA is the finalization of Foran Energy and Cheniere's heads of agreement signed on Nov. 6, 2020.

Under the agreement, Shenzhen-listed Foran Energy will purchase around 300,000 mt/year of LNG from Cheniere, on a DES basis, with delivery starting from Jan. 1, 2023, the company said.

Foran is expected to purchase four LNG cargoes annually from Cheniere, with a total procurement volume not exceeding 80 shipments, or 6.08 million mt, over the contract period. The pricing basis will be Henry Hub on the New York Mercantile Exchange, in addition to liquefaction and transportation costs, according to a separate joint announcement dated Nov. 24.

While the SPA follows a previous HOA, some terms including the procurement volume and contract period in the SPA have been changed after discussions between the two parties, according to two sources with direct knowledge of the deal.

Foran previously intended to purchase around 26 LNG cargoes from Cheniere for delivery over 2021-2025, on a pricing basis of Henry Hub Index on NYMEX with an additional fixed fee.

The expansion of volumes and the longer 20-year duration of the deal underscores growing appetite for US LNG among Chinese buyers, despite the overhang of trade wars from the previous US government. It is in line with the flurry of long-term deals triggered by record-high spot prices as importers look for the safety of contracted volumes.

"Cheniere is very pleased to nail down the 20-year SPA with Foran Energy and will support the latter to meet its goal of providing more clean energy to end-users in the long term," Jack Fusco, president and CEO of Cheniere, said in the statement.

Yin Xiang, president of Foran Energy, noted that the establishment of a long-term LNG trade partnership between Chinese city gas enterprises and Cheniere is in line with China's sustainable development strategy as well as the carbon emissions peak and carbon-neutral targets, adding that his company was looking forward to working with Cheniere to develop more extensive and in-depth cooperation opportunities in the future.

Cheniere has been aggressively marketing its LNG to China this year. China's ENN Natural Gas in October signed a 13-year deal with Cheniere to buy 900,000 mt/year of LNG, starting from July 2022. State-owned Sinochem in November signed a 17.5-year contract with Cheniere, to purchase an initial volume of about 900,000 mt/year from July 2022, after which the volume will eventually rise to 1.8 million mt/year over the course of the agreement.

"More Chinese companies are looking to sign contracts with US suppliers since we are seeing a lot more new supplies from the US. Chinese buyers also want to have greater portfolio diversification, and we are also expecting Brent [crude] prices to remain high going forward," a Shenzhen-based source said.

Previously, Foran Energy signed a two-year deal with BP for supply of up to 600,000 mt/year of regasified LNG via pipeline over 2021-2022. The contract price was linked to the JKM, the benchmark price for spot LNG in Northeast Asia, with a premium attached, according to multiple trading sources. Further details could not be verified.

A day earlier, Cheniere Energy Partners announced that it had produced the first LNG at the sixth liquefaction train at the Sabine Pass terminal in Cameron Parish, Louisiana, one year ahead of the train's previous completion schedule.

Construction company Bechtel Energy will transfer the train to Cheniere Energy Partners at the substantial completion stage, which should occur in the first quarter of 2022, according to a news release.

The completed train will boost the production capacity of Sabine Pass, which has had five 5-million-mt/year trains in operation, to roughly 30 million mt/year and Cheniere Energy's total US LNG production capacity to 45 million mt/year, which includes the 15 million mt/year production capacity at the Corpus Christi export facility in Texas.