January 27, 2011 / 3:50 PM / 9 years ago

UPDATE 2-Cheniere, Sumitomo deal raises optimism for LNG export

   * Sumitomo agreement is for 1.5 million tonnes of capacity
 * Latest in string of nonbinding deals signed by Cheniere
 * Helps pave the way for first US LNG export in 40 yrs
 (Recasts, adds detail, analyst comment)
 By Edward McAllister
 NEW YORK, Jan 27 (Reuters) - The chances of Cheniere Energy Inc’s (LNG.A) proposed liquefied natural gas export plant in Louisiana going ahead got a boost on Thursday as the company signed another deal to tentatively sell the last of the project’s initial export capacity.
 In a deal with Japan’s Sumitomo Corp (8053.T) — the latest in a string of nonbinding agreements with potential customers — Cheniere has now accounted for the 7 million tonnes per year of LNG capacity that could be exported from Sabine Pass by 2015.
 Under the agreement, Sumitomo will buy 1.5 million tonnes per year (mtpa) of LNG capacity at the proposed plant.
 It is the latest step toward building the first LNG export plant in the U.S. in forty years, prompted by ample domestic natural gas supply and relatively tepid demand. Export would allow U.S. gas producers to take advantage of higher gas prices in Europe and Asia.
 “With this (Sumitomo agreement) we have up to 7.7 mtpa of LNG processing capacity reserved,” said Cheniere chief executive Charif Souki. “We have reached our targeted capacity for the first two trains.”
 The export plant will be built on the site of Cheniere’s existing import terminal — the biggest in the United States with 4 billion cubic feet (bcf) per day of capacity and 16.9 bcf of storage.
 Some of the 7.7 mtpa signed with Cheniere will count for customer import capacity.
 Cheniere has signed nonbinding agreements in recent months with Spain’s Gas Natural Fenosa GAS.MC, Morgan Stanley (MS.N), China’s ENN Energy, EDF Trading and now Sumitomo.
 Cheniere plans to firm these into definitive agreements. They are subject to Cheniere getting regulatory approval to build the export plant.
 The Federal Energy Regulatory Commission (FERC) is reviewing the project.
 Analysts are increasingly positive about Cheniere’s project, given the recent interest from potential customers.
 “We are becoming progressively more optimistic about Cheniere’s plan — clearly in a world with fewer and fewer compelling export options, the U.S. stands out,” said Nikos Tsafos, analyst at PFC Energy in Washington, D.C..
 Challenges remain concerning the economics of the project, however, with some analysts concerned that high costs and the unpredictability of future gas prices may hinder Cheniere’s plan.
 “We still maintain that the economics are not a done deal,” Tsafos said. “Relative to alternative projects, a Sabine Pass-type project with $6.50 Henry Hub [gas prices] would be the world’s most expensive project.”  (Editing by David Gregorio)   

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