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RPT-Cheniere and BG ink $8 bln deal to export US LNG
October 26, 2011 / 1:55 PM / 6 years ago

RPT-Cheniere and BG ink $8 bln deal to export US LNG

* Cheniere to supply 3.5 mln tonnes a year to BG
    * Deal will run for 20 years
    * BG will ship LNG to markets across the globe

    By Edward McAllister
    NEW YORK, Oct 25 (Reuters) - BG Group will export liquefied
natural gas from the United States under a landmark $8 billion deal with
Cheniere Energy that will allow domestic producers to ship
bountiful shale gas supplies to the world for the first time.
    The deal, announced Wednesday, paves the way for terminal developer
Cheniere to secure financing for the its Sabine Pass project in Louisiana
which could be the first LNG export plant built in the United States in
nearly 50 years as U.S. gas production hits record highs.
    "If we start construction by next year then we could be exporting by
2015," Cheniere chief executive Charif Souki told Reuters. "The BG Group
contract will help with financing."
    The deal is expected to reap $410 million a year, Souki said, a boon
for a company which put most of its money into building a huge import
terminal at Sabine Pass that has for three years received only sporadic
supply.
    Record U.S. natural gas production has swamped the market in recent
years, leading 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 the deal, which could help reverse the fortunes of the troubled
Houston-based company, Cheniere will sell 3.5 million tonnes per year of
liquefied natural gas to BG for 20 years from its proposed export plant in
Sabine Pass, Louisiana.
    Terminal developers like Cheniere are scrambling to turn their idle
import facilities into export plants to ship U.S. natural gas abroad after
a revolution in shale gas production left the United States with 100 years
of supply.
    BG Group, one of the world's biggest LNG players, has access to import
markets across the globe. Anywhere from Japan to Korea 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.
    FACTBOX:
    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 an
increasingly viable option.

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