Cheniere Energy Inc. reached a deal with shale producer EOG Resources Inc. to market LNG made with its gas, an arrangement that will support the exporter's proposed midscale liquefaction expansion at its terminal near Corpus Christi, Texas, the companies said.
The deal, announced Sept. 16 as the annual Gastech conference got underway in Houston, is similar to an agreement Cheniere struck in June with Permian producer Apache Corp. that marked a new kind of gas supply agreement for the U.S. LNG sector. The arrangement has an upstream company take on the most exposure to global LNG prices.
As with the Apache agreement, Cheniere planned to use the EOG agreement to help secure financing for the company's Stage 3 expansion at its Texas liquefaction facility, a project the company expects to commercially sanction in 2020.
Under the latest deal, EOG will sell natural gas to Cheniere over approximately 15 years beginning in early 2020. The quantity would start at approximately 140 MMcf/d and increase to approximately 440 MMcf/d. The LNG associated with 140 MMcf/d of this gas supply, or approximately 0.85 million tonnes per annum, will be owned and marketed by Cheniere, and EOG will receive a price based on the Platts JKM, the benchmark price for spot-traded LNG in Northeast Asia. The remaining 300 MMcf/d will be sold by EOG to Cheniere at a price indexed to the U.S. Henry Hub.
A portion of the transaction is subject to certain conditions, including a positive final investment decision on Cheniere's midscale expansion. The project is being developed to include up to seven trains with a total expected capacity of approximately 9.5 mtpa.
Cheniere has said it views the EOG and Apache deals as a commercial evolution in the U.S. LNG industry. Market observers have said it could mark a paradigm shift in the way LNG export developers commercialize projects by adding oil and gas producers into the pool of customers that can support investment decisions.
The deal structure is also significant because it provides a mechanism through which U.S.-produced gas can respond to global LNG fundamentals. The growing U.S. LNG sector has so far demonstrated an ability to inject supplies into world markets and influence global LNG prices. The effect of global LNG prices on U.S. prices has been muted.
Harry Weber is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.
