BG Group first to seal U.S. LNG export deal
NEW YORK (Reuters) - Britain's BG Group (BG.L) took the lead in a race to export liquefied natural gas from the United States on Wednesday, inking a landmark $8 billion deal with Cheniere Energy (LNG.A) to open a new chapter in the shale gas revolution that has redefined global markets.
The deal, under which Cheniere will supply leading LNG trader BG Group with gas to ship across the globe over 20 years, will help Cheniere secure financing to build the first U.S. export terminal in nearly 50 years at Sabine Pass in Louisiana. Shares in Cheniere surged 50 percent on the news.
The agreement is a milestone for a U.S. natural gas market that has been turned upside down by the discovery of a century's worth of cheap shale reserves. Cheniere built Sabine Pass for imports in 2008, but those quickly dried up as demand slowed and prices tanked.
"This is clearly the most bullish sign for U.S. LNG exports that we have seen," said Nikos Tsafos, analyst at PFC Energy in Washington, D.C.
"Much of the industry has been very skeptical about US LNG exports. Now here is a world-class LNG player who is saying, we looked at the economics and they can work," he added.
The deal is expected to reap $410 million a year, Souki told Reuters, which could reverse the fortunes of a company which suffered after betting that the United States would be a major importer of LNG.
Record U.S. natural gas production, thanks to new drilling techniques, has led to a series of rival export proposals all hoping to sell LNG to higher paying markets in Asia and Europe.
LNG is natural gas cooled to a liquid for shipping overseas.
Under Wednesday's deal, Cheniere will sell 3.5 million tonnes per year of liquefied natural gas to BG for 20 years, with a potential 10 year extension.
BG Group, one of the world's biggest LNG players, has access to import markets across the globe: last year it exported LNG to 19 different countries, its website said. Anywhere from Japan to China to Chile could soon be importing U.S. gas.
Cheniere will sell the LNG to BG for 115 percent of U.S. benchmark Henry Hub prices, plus a $2.25 premium.
"The 15 percent will be used for fuel and sourcing the gas, so we will make $2.25 (per million British thermal units)," Souki said.
"We haven't decided where we will source the gas from. It will either be from the market or through a supply deal," he said.
Sabine Pass will have an initial capacity to export 9 million tonnes per year. Cheniere expects to announce another supply deal soon, Souki said.
Five projects across the United States and two in western Canada have applied for construction and export licenses, seeking long term deals predominantly with buyers in Asia where prices are four times higher than those in the United States.
"The United States is probably going to end up being a major exporter of natural gas in the coming years," said Phil Flynn, analyst with PFGBest Research in Chicago.
Cheniere is the only project in the United States with a license to ship LNG across the globe. It is now waiting for approval to start construction at Sabine Pass, which will source gas from prolific shale fields in the southern United States for thirsty Asian markets.
While U.S. gas prices has fallen under the weight of ample supply, Asian gas prices have rocketed more than 50 percent since March, when an earthquake knocked out a large portion of Japan's nuclear power supply and raised LNG imports.
Asian spot LNG prices are now around $17 per million British thermal units, compared to less than $4 in the United States, making export a viable option.
(Additional reporting by Eileen Moustakis; Editing by John Picinich and Sofina Mirza-Reid)
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