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Sempra Energy may be in position next year to make final investment decisions on two LNG export terminals - one in Texas and the other in Mexico -- amid a pickup in commercial activity and as it prepares to start up the Cameron LNG terminal it is building in Louisiana, an executive said Wednesday.
Chief Operating Officer Joe Householder's comments in a telephone interview with S&P Global Platts come as the San Diego-based power and gas provider announced it had signed a firm offtake deal with Polish Oil & Gas that will support its proposed Port Arthur LNG terminal.
The sale and purchase agreement for 2 million mt/year of LNG follows a preliminary deal reached between the parties in June. The volume represents about 18% of the 11 million mt/year capacity envisioned for the two-train facility in Jefferson County. Sempra would like to contract as close to 100% of the capacity as possible before making a positive FID, Householder said.
"We don't have a precise number," he said. "We'd like to have it more fully contracted. If we have something in a high percentage that gives us the ability of a high rate of return and the opportunity to sign others quickly, our board would have to take a look at that."
The 20-year deal with PGNiG was the second firm long-term LNG offtake agreement announced by a US developer in as many days.
Cheniere Energy said Tuesday it had reached an SPA with Malaysia's Petronas that will support a proposed sixth train at its Sabine Pass terminal in Louisiana. Port Arthur LNG also has a memorandum of understanding with Korea Gas for potential participation in that project.
Among second wave projects such as Port Arthur LNG, there has been a blitz of preliminary and firm deals announced in recent months, led by Venture Global LNG in support of its proposed Calcasieu Pass terminal in Louisiana. Tellurian recently reached a preliminary offtake agreement that will support its Driftwood LNG project, also in Louisiana.
"We had hoped to build expansion at Cameron right after we took FID in the 2015 timeframe. Then there became this lull. Oil prices went down. Buyers became antsy about what to do," Householder said. "It's starting to pick back up."
Port Arthur LNG will need to compete on price with some extremely low-cost export projects in the Gulf Coast, including Driftwood LNG, which is currently estimated to cost only $585/mt based on its executed EPC contract with Bechtel, or Cheniere's liquefaction optimization program, which could squeeze up to 2.7 million mt/year of additional production out of existing liquefaction trains at Sabine Pass and Corpus Christi, Texas, for around $300/mt. These costs are well below the first wave of US LNG export projects, which were in the range of $670-$1100/mt.
The size of the recently announced contracts has also decreased for the upcoming second wave of US LNG export projects. Sabine Pass LNG T1-4, Freeport LNG T1-3 and Cameron LNG T1-3, were all underwritten by large, 3.8-4.8 million mt/year offtake contracts, with annual liquefaction fees breaking well above $500 million a year. By comparison, among offtake contracts signed in the last year, the largest was Sumitomo's 2.2 million mt/year binding agreement for capacity from Freeport LNG's proposed Train 4 expansion.
Financial terms for the recent deals have not been disclosed, making it difficult to calculate how competitive the projects will be. PGNiG said the price formula for its deal with Sempra is based on Henry Hub prices. The volume trends suggest that while there is still an appetite for additional LNG export capacity in the early-to-mid 2020's, the total risk tolerance may have declined.
Among buyers, developing its LNG import portfolio is one of PGNiG's main gas supply diversification strategies. Currently, Gazprom supplies around three-quarters of PGNiG's gas import needs under the partially oil-indexed Yamal contract that will expire in 2022.
Besides Port Arthur LNG, Sempra also has proposed the Energia Costa Azul LNG export terminal in Baja California, Mexico. It recently said it had reached preliminary agreements with buyers that, if finalized, would cover all of the liquefaction capacity for the first phase of that project.
As for Cameron LNG, in November the company said it expected that feedgas would begin flowing to the facility before the end of 2018, with first production and exports soon thereafter. But Householder said in Wednesday's interview that Cameron LNG had yet to make a request to regulators to begin flowing feedgas, putting off likely approval of that process until next year.
Householder emphasized that the Phase 1 of the project is on target with its current schedule. The company expects to have three trains at Cameron LNG online by the end of 2019.
"I think the expectation is we will have LNG production early next year," he said. "I'm not going to predict which month."
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