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Cheniere benefiting from commercial strength amid positive LNG growth outlook

Houston (Platts)--8 Nov 2018 556 pm EST/2256 GMT


New offtake agreement signed with Polish buyer

Terminal improvements to boost capacity, incremental volumes

Cheniere Energy has inked a new offtake contract with Poland's dominant natural gas distributor, started up the fifth LNG train at its Louisiana export terminal and is close to beginning production at its Texas facility, the company said Thursday as it reported improved financial results and a strong growth outlook.

The activity comes as Cheniere makes improvements to its existing and planned liquefaction units as it tries to stay ahead of increasing global competition heading into a pivotal decision year for LNG developers.

By reducing the length of maintenance outages, boosting reliability and potentially enhancing the design of its terminals, the Houston-based company believes it will increase capacity by approximately 4 million tons at a cost of $300/mt, which is almost the capacity of an entire new train but at half the cost of building one.

"It is a very competitive market out there, as you see from LNG Canada and the Qataris and the Russians. Everybody's got big plans to expand and grow," CEO Jack Fusco said during a conference call with analysts. "Rest assured, we are doing our part for US LNG to grow our business"

Investors cheered. Cheniere shares rose 2.2% to close at $63.03 in Thursday trading in New York. The stock has traded in a 52-week range of $46 to $71.03.

The 24-year sale and purchase agreement calls for state-owned Polish Oil & Gas to buy approximately 1.45 million mt/year of LNG from Cheniere on a delivered ex-ship basis. Deliveries will begin in 2019, with the full annual quantity starting in 2023, Cheniere said. The purchase price for LNG is indexed to the monthly Henry Hub price, plus a fee.

Poland is looking to reduce its dependence on Russian pipeline gas in part by increasing imports of LNG, and it has increasingly been looking to the Qataris and the US to provide the supply. Last month, Polish Oil & Gas finalized a purchase and sale agreement with Venture Global, which has proposed two LNG export terminals in Louisiana. The Polish company said the LNG from that deal would be more than 20% cheaper than Russian gas.

"The good news is natural gas demand continues to increase worldwide, especially in Asia," Fusco said. "We have been extremely busy." Amid the commercial progress, Cheniere's operations are ramping up.

Because of the facility improvements, Cheniere expects its marketing unit to gain access in 2019 to 2.5-3 million tons of incremental LNG volumes to sell as spot cargoes ahead of the commencement of new long-term contracts.

Cheniere now has has five liquefaction trains in operation at its Sabine Pass terminal in Louisiana. Train 5 recently began production, Cheniere said. The company said it has signed an engineering, procurement and construction contract with Bechtel for a sixth train at Sabine Pass and given the contractor a limited notice to proceed with some early site work. Cheniere hopes to make a final investment decision by early 2019 about whether to build Train 6.

"We need to put the financing in place," Chief Financial Officer Michael Wortley said on the call. The all-in cost of building the train is expected to be up to approximately $600/mt, Wortley said.

At its export terminal near Corpus Christi, Texas, three trains are under construction. Wortley said on the call that Train 1 is "very close" to beginning production. The first commissioning cargo could be exported from Corpus Christi as soon as later this month. A event to mark the opening of the facility is scheduled for November 15. The CEO of the Port of Corpus Christi Authority, Sean Strawbridge, has said he expects the first cargo to ship soon after that.

MARKET FORECAST

For the July-September quarter, Cheniere reported a profit of $65 million, or 26 cents a share, compared with a year-ago loss of $289 million, or $1.24 a share. Revenue rose more than 29% to $1.82 billion from $1.4 billion in the third quarter of 2017.

With forecasts suggesting there could be a significant shortfall in the global supply of LNG by the early to middle part of next decade because of not enough new liquefaction terminals being built, Fusco said he believes there is a big opportunity for Cheniere to grow at its existing facilities.

"The wind is at our back," the CEO said. "We just need to continue to execute." -- Harry Weber, Harry.Weber@spglobal.com

-- Edited by Gail Roberts, newsdesk@spglobal.com




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