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Flurry of LNG supply deals builds momentum for 2nd wave of US export projects

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U.S. Energy Secretary Rick Perry speaks Nov. 8 about Europe raising its energy security during a ceremony in Warsaw, Poland, where Poland's main gas company PGNiG signed a long-term deal for liquefied gas deliveries with the U.S. firm Cheniere.

Source: Associated Press

Another agreement for Poland to buy LNG from a U.S. developer added to a flurry of contract activity for the American gas export industry in recent months that is bolstering the prospects of new export terminals.

The most recent deal, announced Dec. 19 by Polish Oil and Gas Co., or PGNiG, called for the state-run energy company to buy 2 million tonnes per annum of LNG from Sempra Energy's proposed Port Arthur LNG export facility in Texas over a period of 20 years. The Polish company is securing alternatives to Russian gas supplies and has signed two other long term deals in recent months.

In October, PGNiG struck a 20-year deal to buy LNG from Venture Global LNG's two proposed gas export facilities in Louisiana. That was one of several long-term agreements Venture Global reached as it moved closer to its target construction start in early 2019 on the first terminal, Calcasieu Pass. In November, PGNiG signed a 24-year LNG supply deal with the marketing arm of Cheniere Energy Inc. to buy shipments rising to about 1.45 mtpa.

The spate of supply deals with U.S. developers in 2018 reached beyond Poland as momentum for North American projects picked up after a period of lagging investment. The long-term supply agreements are used by developers to underpin their multi-billion projects.

Cheniere on Dec. 18 announced a long-term agreement to supply a Petroliam Nasional Bhd. unit with LNG that could push a sixth train at the company's Sabine Pass terminal across the line for a final investment decision in 2019.

Since September, a half-dozen North American LNG developers including one in Canada announced long-term LNG supply agreements with offtakers that overshadowed sales from the rest of the world combined during the same period, according to the consulting firm Wood Mackenzie.

"I think we'll look back at 2018 and we'll really see it as a major turning point, and that's reflected in the very strong momentum that's been building over the course of the year but especially in the last few months," author Alex Munton, principal analyst for Americas LNG at Wood Mackenzie, said in an interview, attributing the wave of deals to growing recognition of a looming supply gap. "It's been a hugely significant year, and it really propels the next wave of projects forward."

Wood Mackenzie in a Dec. 18 report identified three projects as likely to reach final investment decisions in the first half of 2019, including Venture Global's Calcasieu Pass and the Sabine Pass sixth train. The other was the proposed Golden Pass terminal in Texas backed by majority-owner Qatar Petroleum, along with Exxon Mobil Corp. and ConocoPhillips Co. At least two other Gulf Coast projects are not far behind them — Tellurian Inc.'s Driftwood LNG in Louisiana and Freeport LNG Development L.P.'s fourth train expansion in Texas, Wood Mackenzie said.

"It comes down to buyers," Munton said about the front runners for final investment decisions. "You've got to have buyers lined up, with the exception of Golden Pass of course because they might be able to finance that themselves."

Sempra has yet to commercially sanction Port Arthur as it works to complete another project under construction in Louisiana, Cameron LNG, which is expected to start producing LNG from a first train in early 2019. The company has said it plans start exporting from Port Arthur in 2023.

Sempra CEO Jeffrey Martin said in a statement that the PGNiG deal "represents an important expansion of our portfolio of contracts for LNG exports and major step forward in the development of our Port Arthur LNG project."

Financial terms of the three recent supply deals between PGNiG and U.S. developers were not disclosed. But the combined volumes would account for roughly 40% of Poland's daily gas needs, according to figures released by PGNiG.

The LNG deals were celebrated by the Trump administration. In November, the U.S. and Poland entered into an energy cooperation pact that included increasing Polish imports of LNG.

"Our activities show that we consistently implement our strategy," said Piotr Woźniak, president of the management board of PGNiG, in the statement with Sempra. "Another long-term contract not only allows us to develop LNG portfolio with a view to delivering to Poland, but it gives us, in the near future, the possibility of trading in LNG purchased on a global scale."

The prospect of American LNG landing in Europe began to shape Russian energy policy before actual shipments began in ways that included lower prices and revised contracts with more favorable terms to European buyers, according a recent report out of Columbia University's Center on Global Energy Policy.

But it is likely that Poland is paying more for U.S. gas than it would from supplies delivered by pipe from Russia, experts say. Poland has repeatedly indicated it does not plan to renew its contract with Kremlin-controlled Gazprom and will turn to other options such as LNG from the U.S.

"But this is much more the result of the geopolitical relationship between Poland and Russia rather than a market-driven decision," researchers Tatiana Mitrova and Tim Boersma said.