July 29, 2014 / 1:50 PM / 4 years ago

UPDATE 1-Japan's Mitsui in talks to sell stake in Equatorial Guinea LNG

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By Oleg Vukmanovic

MILAN, July 29 (Reuters) - Japanese trading house Mitsui & Co. is in talks to sell its stake in Equatorial Guinea’s liquefied natural gas (LNG) export project, a senior source with direct knowledge of the matter said.

Mitsui’s 8.5 percent stake in the country’s LNG facility may be snapped up by one or more of the existing project partners as that would simplify the sale process, a second source said.

Stakeholders include U.S.-based Marathon Oil Corp. with a 60 percent share, state-run Sonagas with 25 percent and Japan’s Marubeni with 6.5 percent.

“They have been in talks for at least a couple of months now to sell that stake,” the senior source said, adding that a deal was unlikely to be announced soon.

A Mitsui spokesman in Tokyo was not able to comment immediately when contacted by Reuters.

Equatorial Guinea LNG (EG LNG) sells its entire annual output to Britain’s BG Group which then trades the cargoes to Asian customers at significant markups.

Profits from BG Group trades are not shared with the plant’s foreign shareholders, giving Mitsui little exposure to Asia and Latin America’s booming LNG markets and recent price spikes.

BG’s contract with EG LNG allows it to buy the LNG from Mitsui and others at a fixed discount to one of the world’s cheapest gas benchmarks, the U.S. futures price at Henry Hub in Louisiana, currently trading at $3.74 per mmBtu.

BG Group largely offloads the cargoes in Asia, where long-term LNG prices are about $17 per mmBtu.

Wanting exposure to Asian markets, Mitsui secured 4 million tonnes per year of LNG export capacity from the Cameron plant on the U.S. Gulf Coast, and has signed supply deals with Japanese buyers.

Exports are due to start by the end of the decade.

It also bought a 20 percent stake in the U.S.-based Anadarko Petroleum Corp’s LNG export project off the coast of Mozambique, from where it plans to ship its first LNG in 2018.

Mozambique is locked in a race with Tanzania to become the first east African nation to export LNG after discovering reserves of more than 150 trillion cubic feet off its shores.

It is also studying building a LNG import terminal in Brazil with state-run Petrobras, potentially giving it an alternative export destination to its home markets. (Additional reporting by Aaron Sheldrick in Tokyo; editing by David Clarke)

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