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 Up to a dozen long-term deals, each worth billions of dollars, have
been penned behind closed doors with companies in China, Japan,
Taiwan, Spain, France and Chile as global demand spikes, according
to company, industry and trade sources.
Through the agreements, China in particular has emerged as one of
the biggest beneficiaries of cheap American natural gas that in the
coming years will be piped to Gulf Coast plants and liquefied for
shipment abroad in tankers.
The unannounced deals, which amount to about 2 percent of daily U.S.
supply, are not the first of their kind, and they depend on U.S.
government approval to construct two new liquefied natural gas (LNG)
plants.
But the number of new buyers, and their global scope, show how the
United States is taking steps to becoming a major export hub by
stealing ahead of rivals in Australia and East Africa, successfully
wooing needy Asian buyers even before projects begin construction.
Global competition may squeeze profit margins on some exports of
U.S. gas.
Companies like Britain's BP <BP.L> and France's GDF Suez <GSZ.PA>,
already committed to taking LNG from the United States, are now
finding multiple buyers willing to take tranches of supply.
"As we see more contracts getting signed, it's an indication that
the U.S. has really cheap natural gas that will help supply the
global market," said Jason Bordoff, Director at the Center on Global
Energy Policy at Columbia University.
The United States is producing record amounts of natural gas thanks
to a drilling boom, and more than a dozen export projects have been
proposed. But large domestic users of natural gas such as the
petrochemical industry are worried that unfettered exports could
push prices higher at home. The Obama administration has been
approving exports on a case-by-case basis.
So far, only four projects are allowed to export across the globe
and only one is under construction.
Cheniere Energy's <LNG.A> Sabine Pass project in Louisiana, expected
to begin shipments late in 2015, has sealed deals with importers in
Europe and Asia over the past two years.
This latest batch of gas sales will be exported from Sempra Energy's
<SRE.N> Cameron LNG plant in Louisiana and the Freeport LNG plant in
Texas, sources said. Both plants are expected to begin operations by
the end of the decade, pending approvals.
Sempra is still waiting on permits to construct the Cameron plant,
and to export the gas to countries with which the U.S. does not have
a free trade agreement. Freeport has full export approval, but is
yet to begin construction.
THE DEALS
Securing buyers early can make or break an LNG project. Without
buyers, a project will not receive financial backing or be built.
GDF Suez, which acquired export rights at Cameron last year, has
agreed to sell all of its 4 million tonnes per year of capacity to
buyers in Japan, Taiwan, China and Chile, according to a review of
deals confirmed by industry sources.
Japan's Mitsubishi <8058.T> and Mitsui <8031.T>, also with export
rights at Cameron, have separately targeted major buyers such as
Spain's Repsol <REP.MC>, France's Total <TOTF.PA> and Japanese
utilities. Mitsubishi is to sell a significant chunk of LNG to its
own trading arm in Singapore. Sources said Japanese buyers were
reluctant to commit to large deals while the fate of its nuclear
fleet remained uncertain after the 2011 Fukushima disaster.
Mitsubishi is also in talks with Indian Oil Corp. <IOC.NS> to sell 1
mtpa of LNG for its planned terminal at Ennore in southern India, a
company executive said. Exact volumes may be adjusted.
Sempra hopes to make a final investment decision to build the
Cameron plant later this year. Once that decision is made, the deals
agreed by GDF Suez, Mitsui and Mitsubishi automatically become
formal sales agreements, industry sources said. The San Diego-based
company expects to win export approval from the U.S. Department of
Energy before April.
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Meanwhile, BP is in talks to export LNG from the Freeport plant to
China National Offshore Oil Corporation (CNOOC), giving the British
company a foothold in the world's largest energy consumer. This and
older deals with other exporters will soon make China one of the
largest importers of U.S. gas.
BP has a further deal to supply Japanese utility Tepco with 0.5 mtpa,
sources said.
BP declined to comment. Mitsui and its prospective Japanese utility
customers Kansai Electric and Tohoku Electric also declined comment.
For a full list of deals, see table.
More than 12 million tonnes per year (mtpa) of LNG would be exported
from the United States under the deals, or around 1.5 billion cubic
feet per day of gas, though some volumes may alter in final
negotiations, sources said. U.S. daily production is about 70
billion cubic feet.
"These deals will send a signal that there is still strong demand
for U.S. LNG volumes," said Andres Rojas, analyst at Waterborne
Energy in Houston.
GDF was also in talks with Thailand's PTT but these were abandoned
after a failure to agree terms last year, a senior PTT source said.
Mitsui also broke off talks with South Korean importer GS Caltex, a
source at the company said.
HARD SELL
Despite these recent deals, sellers have found it harder than
expected to find new buyers, and have had to offer favorable terms
when they do.
A projected LNG supply spike between 2016-2020 from North America,
Australia, east Africa, Russia and Asia has empowered buyers to push
down the price of long-term deals being negotiated now.
This is partly reflected in the low profit margins U.S. exporters
stand to make from many of the recently concluded agreements.
"The United States is not the only gas producer, so we are competing
in a market with countries like Qatar, Malaysia, Australia and
potentially East Africa," Bordoff said. "There is not infinite
demand. There is only so much supply that the global market can
take."
In its first long-term LNG deal into Asia, GDF Suez is selling 0.8
mtpa to Taiwan's CPC from 2018 at barely break-even levels. According
to the price formula reviewed by sources, CPC will pay around $12
per million British thermal units for the gas in the first year of
the contract, a steep discount to the $16 its pays for LNG prices in
Asia linked to oil.
Moreover, America's edge over rivals could easily dim should
domestic gas prices rise nearer to pre-shale boom levels and crude
oil prices simultaneously drop to around $80 a barrel.
At those levels, LNG deals linked to oil begin to look globally
competitive, handicapping buyers of American gas.
Bearing these risks in mind, buyers nevertheless want limited
exposure to U.S. LNG primarily as a way of negotiating down prices
in oil-indexed, long-term contracts with Qatar and Australia.
(Additional reporting by Michel Rose in
Paris, Aaron Sheldrick and James Topham in Tokyo, Nidhi Verma in New
Delhi, Jane Chung in Seoul, Pisit Changplayngam in Bangkok; editing
by David Gregorio)
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