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Petronas LNG purchase deal with Cheniere to support sixth train at Sabine Pass

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Petronas LNG purchase deal with Cheniere to support sixth train at Sabine Pass

Highlights

20-year agreement for 1.1 million mt/year of LNG

FID on liquefaction unit expected in 2019

  • Author
  • Harry Weber
  • Editor
  • Annie Siebert
  • Commodity
  • Natural Gas
  • Topic
  • LNG Commoditization

Houston — Malaysia's Petronas will buy LNG from Cheniere Energy under a 20-year agreement that will support building a sixth liquefaction train at the exporter's Sabine Pass terminal in Louisiana.

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The long-term offtake deal for approximately 1.1 million mt/year of LNG will be shipped on a free-on-board basis beginning following the date of first commercial delivery from Train 6. Cheniere CEO Jack Fusco told S&P Global Platts in October that the company hoped to make a final investment decision on the train by early next year.

In a statement announcing the sale and purchase agreement with a unit of Petronas, Cheniere said the deal is expected to support the continued progress toward an FID in 2019. The purchase price for the LNG will be indexed to the monthly Henry Hub price, plus a fee.

"We think SPL6 is money-good, and the real questions are really at what price/contract structure and when," Wells Fargo Securities analyst Michael Webber said in a note to clients after the announcement. "With execution of the EPC contract with Bechtel (November), the one milestone they now need to sort out over the next 3-4 months is financing."

Despite market uncertainty and continuing US trade tensions with China, Cheniere has projected a confident market outlook in recent months, and on both the financial and commercial fronts it has managed to outmaneuver many of its US peers, thanks in part to being first to market among major US LNG exporters when Sabine Pass started up in 2016. Also, its one-stop shop for producing, marketing and delivering LNG around the world on a destination-flexible basis gives it a competitive advantage.

Cheniere has been stressing to the Trump administration the importance of US LNG in the global marketplace and encouraging it to ease tensions with Beijing. China imposed tariffs on imports of US LNG starting September 24, and with less than two weeks before the end of 2018 there is no sign of the duties being lifted anytime soon.

Click here to view larger image

Cheniere Energy's exports from Sabine Pass terminal

Cheniere is currently operating five trains at Sabine Pass and one train at its export terminal near Corpus Christi, Texas. The facility in Texas recently shipped its first cargo, which is on its way to Greece. Two more trains are under construction at Corpus Christi.

While the agreement with Petronas is the first one announced by Cheniere that is directly tied to the proposed Train 6 at Sabine Pass, in general, other SPAs with investment grade counterparties can be used to support financing for new LNG capacity. Cheniere has reached several such deals this year, though early ones will support the third train at Corpus Christi.

"We think Cheniere had been looking to get one or more FOB contracts signed to help simplify the financing process (it's simply easier to underwrite fixed-price FOB contracts and keep DES business at CMI) -- with 1.8 mtpa (~38%) FOB commitments and the inclusion of one DES contract (1.45 mtpa PGNiG or 2 mtpa CPC) able to get them to ~70-81% (which should be more than sufficient coverage to take to its lenders)," Webber said.

The analyst added, "Given significant commercial progress and Cheniere's investment grade rating, we don't expect any major issues with financing."

--Harry Weber, Harry.Weber@spglobal.com

--Edited by Richard Rubin, newsdesk@spglobal.com

20-year agreement for 1.1 mtpa of LNG
FID on liquefaction unit expected in 2019
Malaysia's Petronas will buy LNG from Cheniere Energy
under a 20-year agreement that will support building a sixth
liquefaction train at the exporter's Sabine Pass terminal in
Louisiana.
The long-term offtake deal for approximately 1.1 million
mt/year of LNG will be shipped on a free-on-board basis
beginning following the date of first commercial delivery from
Train 6. Cheniere CEO Jack Fusco told S&P Global Platts in
October that the company hoped to make a final investment
decision on the train by early next year.
In a statement announcing the sale and purchase agreement
with a unit of Petronas, Cheniere said the deal is expected to
support the continued progress toward an FID in 2019. The
purchase price for the LNG will be indexed to the monthly Henry
Hub price, plus a fee.
"We think SPL6 is money-good, and the real questions are
really at what price/contract structure and when," Wells Fargo
Securities analyst Michael Webber said in a note to clients
after the announcement. "With execution of the EPC contract
with Bechtel (November), the one milestone they now need to
sort out over the next 3-4 months is financing."
Despite market uncertainty and continuing US trade
tensions with China, Cheniere has projected a confident market
outlook in recent months, and on both the financial and
commercial fronts it has managed to outmaneuver many of its US
peers, thanks in part to being first to market among major US
LNG exporters when Sabine Pass started up in 2016. Also, its
one-stop shop for producing, marketing and delivering LNG
around the world on a destination-flexible basis gives it a
competitive advantage.
Cheniere has been stressing to the Trump administration
the importance of US LNG in the global marketplace and
encouraging it to ease tensions with Beijing. China imposed
tariffs on imports of US LNG starting September 24, and with
less than two weeks before the end of 2018 there is no sign of
the duties being lifted anytime soon.
Cheniere is currently operating five trains at Sabine
Pass and one train at its export terminal near Corpus Christi,
Texas. The facility in Texas recently shipped its first cargo,
which is on its way to Greece. Two more trains are under
construction at Corpus Christi.
While the agreement with Petronas is the first one
announced by Cheniere that is directly tied to the proposed
Train 6 at Sabine Pass, in general, other SPAs with investment
grade counterparties can be used to support financing for new
LNG capacity. Cheniere has reached several such deals this
year, though early ones will support the third train at Corpus
Christi.
"We think Cheniere had been looking to get one or more
FOB contracts signed to help simplify the financing process
(it's simply easier to underwrite fixed-price FOB contracts and
keep DES business at CMI) -- with 1.8 mtpa (~38%) FOB
commitments and the inclusion of one DES contract (1.45 mtpa
PGNiG or 2 mtpa CPC) able to get them to ~70-81% (which should
be more than sufficient coverage to take to its lenders),"
Webber said.
The analyst added, "Given significant commercial progress
and Cheniere's investment grade rating, we don't expect any
major issues with financing."
-- Harry Weber, Harry.Weber@spglobal.com
-- Edited by Richard Rubin, newsdesk@spglobal.com

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