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Cheniere Energy attains 'critical mass' in LNG expansions

Cheniere Energy Inc. showed off its power as the biggest shipper of U.S. LNG through two announcements that supported the company's plans to keep adding natural gas liquefaction and export capacity at a time when the U.S. LNG landscape has become increasingly competitive.

The U.S. LNG export pioneer said June 3 that it commercially sanctioned a sixth liquefaction train at its Sabine Pass export terminal in Louisiana. The development was long anticipated. But Cheniere also revealed a new deal with Apache Corp. for a gas supply agreement that will support an expansion at the exporter's newest terminal in Corpus Christi, Texas.

Cheniere executives plan to make the company, which exported the first LNG cargo from the U.S. mainland in 2016, a top buyer of natural gas in the U.S. and one of the world's largest LNG exporters.

"They have reached this critical mass now where it affords them business opportunities that are just sitting there waiting for them, because they are touching everyone, they are talking to everyone," Credit Suisse analyst Spiro Dounis said in an interview. "They are the critical midpoint for a lot of the transacting, and it is naturally driving more business."

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The Apache deal marked a new way of commercializing an export project for Cheniere. Apache agreed to a take-or-pay 15-year deal with Cheniere, which would market Permian Basin gas to world buyers for an undisclosed fee and take on the greater exposure to global LNG prices.

"This first-of-its-kind, long-term agreement with Apache represents a commercial evolution in the U.S. LNG industry, as it will ensure the continued reliable delivery of natural gas to Cheniere from one of the premier producers in the Permian Basin, while enabling Apache to access global LNG pricing and receive flow assurance for its gas," Cheniere President and CEO Jack Fusco said in a statement.

Cheniere said it expected to commercially sanction the Stage 3 expansion at Corpus Christi as soon as 2020. The project involves the construction of up to seven midscale liquefaction trains, expected to produce a total of about 9.5 million tonnes per annum of LNG. The LNG associated with the gas supply under the Apache deal is equivalent to about 0.85 mtpa.

"This basically is [a sale and purchase agreement], almost in reverse," Dounis said. "For Cheniere, they don't care — they are getting a fixed fee no matter what. It's just that they are getting it from the supplier in this case, not the demand center."

Cheniere officials outlined a capital plan that calls for reinvestment in growth. In a third announcement, Cheniere authorized a $1 billion, three-year share buyback program, but it held off on offering a dividend.

Analysts at CreditSights said in a June 3 note to clients that Cheniere's capital framework announcements focused on increased cash flow funding and investment grade ratings, with the company moving to strengthen its balance sheet across the corporate structure.

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Cheniere likely could have taken a final investment decision on the sixth train at Sabine Pass months ago, with executives saying for months that the company had more than enough supply contracts to support it. But after giving construction contractor Bechtel Oil Gas and Chemicals Inc. the go-ahead to begin early work on the sixth train in late 2018, Cheniere had months to seek additional contracts before the company needed to give Bechtel full notice to proceed with the project. Cheniere in an investor presentation committed to striking a deal with another creditworthy buyer to support the train.

To help pay for the project, Cheniere said it struck five-year senior secured credit facilities with 29 banks and financial institutions, providing $1.5 billion in funds for train 6, as well as a third LNG berth and other support infrastructure.

The contracts tied to the project so far have included a 15-year agreement with Vitol Inc. that was secured in September 2018. The other deal attached to the project was a 20-year agreement struck in December 2018 with Petronas LNG Ltd, a subsidiary of the Malaysian state-owned energy giant Petroliam Nasional Bhd.

Five trains are in operation at Sabine Pass. One train is in operation at Corpus Christi. The company is commissioning a second train at Corpus Christi that is expected to become operational in the coming months. A third train is under construction. Regulatory approval of the Corpus Christi expansion is pending, but Cheniere said it expected the authorization by the end of 2019.