Cheniere strikes LNG-indexed deal with EOG for Corpus Christi Stage 3 volumes

9/18/2019

LONDON/HOUSTON/SINGAPORE – Cheniere announced gas sales agreements (GSAs) with EOG which indexes gas sales to international LNG pricing.

Alex Munton, principal analyst, Americas gas and LNG at Wood Mackenzie, said this is the second deal where a US producer is selling gas to Cheniere linked to international LNG pricing. It follows a similar deal between Apache and Cheniere announced in June where Apache has agreed to sell 140 MMcfd – equivalent to 0.85 million tonnes per annum (tpa) of gas to Corpus Christi Stage 3.

The deal will see 140 MMcfd indexed to Platts Japan Korea Marker (JKM). Under the agreements reached, gas sales will start at 140 MMcfd and rise to 440 MMcfd. The remaining 300 MMcfd will be price indexed to Henry Hub.

Munton said: “This additional deal solidifies the appetite for US producers to participate in supporting development of US LNG exports, following their notable absence in the first wave.”

Wood Mackenzie forecasts EOG’s working interest gas production to reach nearly 3 billion cfd by 2025. The LNG priced component of this deal represents only about 5% of that portfolio. 

He added: “The challenge for LNG developers and buyers seeking US producers as counterparties is finding the right producer for the project.  In many regards, EOG is an ideal counterparty; in addition to its solid operational reputation, it is one of the strongest financially across the US independent peer group, a status that can support project financing. 

“Our analysis indicates a limited number of producers can support these kinds of deals; in covering the largest companies that account for approximately 75% of production, only 10 US independents are investment grade, and they represent less than 20% of total Lower 48 production in 2025.  Majors add another 15% of production and are more likely to do a deal to facilitate projects supporting their own LNG portfolios.”

Munton said Cheniere’s ability to structure long term GSAs with US producers on an LNG price index leverages the strengths of its business.  Cheniere is the largest buyer of natural gas in the US, has a world-class track record for project execution and a dedicated marketing business, CMI, through which gas bought in the US on an LNG price index can be marketed globally.

The GSAs are with Cheniere’s subsidiaries, Corpus Christi Liquefaction (CCL) and Corpus Christi Stage 3 (Stage 3). They cover a period of 15 years with first gas sales expected to start early next year.

He added: “CCL owns and operates three trains, two of which are onstream and a third which is under construction and due to start in 2021. Cheniere is targeting FID at Stage 3 next year and first LNG around 2025. The project is permitted for seven mid-scale trains of 1.36 million tpa capacity each, equal to 9.5 million tpa in total.

“Cheniere could potentially develop Stage 3 in increments and is in a strong position to take FID on the first 4 million to 5 million tpa of capacity in 2020.

“Cheniere will finance 50% of capex from cash flow. This means Cheniere may only need 2 million to 3 million tpa in sales to cover the debt financing for the initial development. Its integrated production marketing (IPM) transactions with Apache and EOG total 1.7 million tpa; Cheniere could potentially also use additional sales already concluded via CMI to support the Stage 3 development.”

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