China Contract Gives Impetus to Cheniere, Other U.S. LNG Producers

---

Researched by Industrial Info Resources (Sugar Land, Texas)--Earlier this week, Cheniere Energy Incorporated (NYSE:LNG) (Houston, Texas) gave the go-ahead for a third production train at its liquefied natural gas (LNG) production and export facility in Corpus Christi, Texas. The final investment decision seems to have been fueled in part by Cheniere's recent long-term sales contracts with China National Petroleum Corporation (CNPC) (Beijing, China). As the U.S. and China proceed with discussions regarding lowering the U.S. trade deficit with China, LNG could be a key plank in preventing what seemed at one point to be leading to a trade war between the two countries.

Cheniere signed its deal with CNPC in February this year for the sale of 1.2 million tons per year of LNG, with a portion of the supply from Cheniere's Sabine Pass facility in Louisiana this year, followed by the balance from 2023 to 2043, after the completion of Train 3. For more information, see February 12, 2018, article - Cheniere Signs LNG Sales Agreement with China. Construction on Train 3 has begun on a limited basis by engineering, construction and procurement (EPC) contractor Bechtel Corporation (San Francisco, California), and Cheniere will now give Bechtel full notice to proceed. For more information, see Industrial Info's project report.

Earlier this month, President Donald Trump set the goal for China to shrink its trade surplus with the U.S. by $200 billion in the next two years. While U.S. LNG sales could not cover this entire amount, it could contribute to shrinking the existing deficit, although this would be some way into the future. Shane Mullins, vice president of product development at Industrial Info, said, "China's efforts to switch millions of homes to natural gas will likely mean Cheniere's Train 3 approval Tuesday will be the first of several expected positive financial investment decisions to occur in the next year and a half. A shortage of liquefied natural gas supplies is approaching by 2023, and buyers are expected to finally start signing long-term contracts. Many non-binding sales agreements have been signed and now need to be converted to sales and purchase agreements over a 20-year period to get a project to move forward." In an effort to reduce air pollution, China is increasingly turning away from coal and toward cleaner fuel sources such as natural gas, potentially opening the door for future contracts with U.S. companies.

Click on the image at right for a graphic showing a list of LNG projects with Federal Energy Regulatory Commission (FERC) approvals in place and another 10 that have reached the formal FERC application process, the final step in permitting before a final investment decision can be achieved.

Among the companies that have received FERC approval and are awaiting a final investment decision on its project is Magnolia LNG LLC, a subsidiary of Australia's Liquefied Natural Gas Limited (Perth). The company plans to construct a two-train LNG facility in Lake Charles, Louisiana, to produce 4 million tons per year. In a recent Reuters article, Greg Vesey, chief executive officer of LNG Limited, said "For us, it's strictly been about marketing to China." Vesey said the company hopes to reach a final investment decision on the project by the end of this year. Construction on the facility could begin next year, with completion planned for 2022. KBR Incorporated (NSYE:KBR) (Houston) and SK Engineering & Construction America (Houston) are performing EPC work. For more information, see Industrial Info's project report. The project could potentially be expanded by another two trains, providing an additional 4 million tons per year of capacity. For more information, see Industrial Info's project report.

Texas LNG Limited (Houston) has filed a formal application with FERC for construction of an LNG liquefaction and export facility in Brownsville, Texas. The plant would have a production capacity of 4 million tons per year. According the Reuters, the company has five early-stage agreements in place with Chinese customers. The company hopes to make a final investment decision on the project next year. The first train could be completed in 2023, followed by a second train in 2025. For more information, see Industrial Info's project reports on Train 1 and Train 2.

Cheniere's sales and purchase agreement with CNPC was the first formal long-term agreement by a U.S. LNG supplier with China. Other companies with long-term agreements with Cheniere include GAIL (India) Limited (New Delhi, India), Trafigura (Amsterdam, Netherlands), Centrica plc (Windsor, England) and Total (NYSE:TOT) (Paris, France). Dominion Energy Incorporated (NYSE:D) (Richmond, Virginia), the only other LNG exporter in the U.S. at the moment, has signed agreements with GAIL, Sumitomo Corporation (Tokyo, Japan) and Tokyo Gas Company Limited (Tokyo). More long-term contracts between China and U.S. producers seem almost inevitable, as China is now the world's No. 2 importer of LNG, behind Japan. Future contracts could be the impetus needed to get U.S. companies moving on any of the more than $250 billion of U.S. LNG projects being tracked by Industrial Info.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.