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Cheniere nears decision on 6th LNG train at Sabine Pass with Petronas deal

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Cheniere nears decision on 6th LNG train at Sabine Pass with Petronas deal

Cheniere Energy Inc.'s long-term agreement to supply a Petroliam Nasional Bhd. unit with liquefied natural gas could push a sixth liquefaction train at the company's Sabine Pass export terminal across the line to be commercially sanctioned in 2019.

"This contract should be enough to let them move forward with a [final investment decision]," Morningstar Inc. analyst Stephen Ellis said. "If not, they are certainly very close, and it is very likely it will move forward at some point."

Notably, the sale and purchase agreement announced Dec. 18 between Sabine Pass Liquefaction LLC and the Malaysian state-owned energy giant's subsidiary, Petronas LNG Ltd., was specifically tied to the sixth train. Cheniere called Petronas a "foundation customer" for the expansion project at the Sabine Pass terminal in Louisiana.

A series of previous supply deals with LNG buyers were connected to Cheniere's marketing arm, meaning the LNG was not attached to a specific project or train, even though some of the deals were still seen supporting the sixth train.

"Linking this particular contract to train 6 does likely help with the banks," Ellis said.

Ellis said he expects the train, which would have an LNG production capacity of 4.5 million tonnes per annum, to start up in 2022. After commercial deliveries start from the train, Petronas will start buying 1.1 mtpa of LNG on a free-on-board basis for 20 years under the deal. The supply agreement was subject to certain conditions, including Cheniere deciding to commercially sanction the project.

Cheniere already gave the go-ahead to heavy industrial construction company Bechtel Corp. to start early work on the expansion. Cheniere said in November that it awarded Bechtel a $2.02 billion contract for construction.

Cheniere executives have indicated the company would only finance about 50% of the new train with debt, as it did with an expansion at its Corpus Christi terminal that reached a final investment decision in May.

During Cheniere's third-quarter earnings call Nov. 8, President and CEO Jack Fusco said the company needs to sort out financing for the train before deciding by the middle of 2019 whether to proceed. "Rest assured, it's our number one strategic focus," he said.

The company is on the verge of a major ramp-up in the LNG it produces. Four trains are in commercial service at Sabine Pass, and Cheniere is commissioning a fifth train that produced its first LNG in late October. The company is also commissioning the first train of its Corpus Christi LNG terminal in Texas, which recently shipped its first cargo. A second train at Corpus Christi is expected to come online in the second half of 2019, and construction has begun on a third train. Each train has a capacity of 4.5 mtpa.

"Ultimately, what contracts we give to train 6 and show to the banks is kind of [to be determined]," Fusco told an analyst who asked in November about how banks would view contracts made through the marketing arm with respect to financing the train.

Fusco said the company prefers to keep LNG sales made on a delivered ex-ship basis with the marketing arm. "That gives us ultimate flexibility to deal with those obligations. ... But it's not out of the question that we would move some of those down if we didn't have standard [free-on-board] business to attach to them. So we'll see how that plays out over the next three or four months."