Oct 11, 2021
A subsidiary of China’s ENN Natural Gas has signed a 13-year deal to buy LNG from Cheniere Energy amid plans by the US exporter to advance the proposed mid-scale liquefaction expansion project at its Texas terminal, the companies said Oct. 11.
The sale-and-purchase agreement with Cheniere’s marketing unit covers 900,000 mt/year of LNG to be delivered on a free-on-board basis from July 2022, with the purchase price indexed to the US Henry Hub price plus an undisclosed, fixed liquefaction fee.
In November 2020, Cheniere said it was comfortable selling a greater amount of marketing volumes produced at its US LNG export terminals on terms that include a liquefaction fee of $2.00-$2.50/MMBtu.
The first five trains at Cheniere’s Sabine Pass terminal in Louisiana were sanctioned under long-term contracts with an average liquefaction fee of $2.78/MMBtu, according to S&P Global Platts Analytics data based on available contract information.
Long-term supply from the three trains at Cheniere’s Corpus Christi terminal in Texas were sold with a liquefaction fee of $3.50/MMBtu, the data showed.
Amid a strong run-up in prices in Asia and Europe, the spread between the Platts LNG FOB Gulf Coast Marker and the Henry Hub has averaged move than $21/MMBtu over the past six months.
Cheniere is the only US LNG exporter with a long-term contract with a Chinese counterparty. It also has two long-term contracts with PetroChina for a combined 1.2 million mt/y of LNG. Only a small portion is in effect, with shipments on the balance starting in 2023.
ENN Natural Gas’s interest in Cheniere supplies follows a major asset restructuring in 2020. An ENN affiliate canceled an agreement in 2019 to acquire the US LNG business of Japan’s Toshiba. The business, which includes supplies from Freeport LNG in Texas, was eventually sold to France’s TotalEnergies. ENN Natural Gas is a subsidiary of Chinese gas company ENN Holdings.
Cheniere has previously said it expected to advance its 10 million mt/y Corpus Christi Stage 3 project in 2022, once remaining investment and commercial parameters are met. Cheniere has 15-year supply agreements tied to the expansion with US gas producers Apache and EOG Resources and Canadian oil and gas producer Tourmaline that cover a combined total of 2.55 million mt/y.
The companies’ statement about the ENN contract did not say whether the volumes under the new deal with Cheniere would be tied to the Stage 3 project, though Cheniere CEO Jack Fusco said the agreement marked another milestone in its commercial efforts “in anticipation of an FID of Corpus Christi Stage 3, which we expect will occur next year”.
Zheng Hongtao, president of ENN Natural Gas, said the SPA was ENN’s first long-term LNG SPA to be indexed to the monthly Henry Hub price.
“Since the beginning of this year, due to the lagging of LNG production projects and low carbon transition of the energy structure, the supply of natural gas market is tight and the price is high. Through this cooperation with Cheniere, ENN will have resources linked with various indexes to further reduce procurement-related risks and optimize its resource pool,” Zheng said.
Privately-owned ENN, one of China’s major natural gas distributors and LNG terminal operators, has previously signed LNG supply deals with BP, Chevron, Australia’s Origin Energy and two heads of agreement with TotalEnergies and Australia’s Woodside, securing a total 2.73 million mt/y of LNG supplies, according to calculations by S&P Global Platts.
The deal with Cheniere will raise ENN’s LNG term contract volume to 3.63 million mt/year.
ENN started phase 2 operations at the Zhoushan LNG terminal in eastern Zhejiang province in June, raising its total LNG receiving capacity to 5 million mt/y from 3 million mt/y.
ENN said the LNG terminal’s gas processing capacity could reach as much as 8 million mt/y, along with its LNG storage capacity doubling to 640,000 cu m.
Market sources said that has pushed the company to sign more LNG term contracts, even as the high spot price environment reduces the appetite of buyers to increase their exposure to spot volumes.
ENN operates more than 230 city gas projects across the country, with an annual LNG distribution capacity exceeding 10 billion cubic meters, the company said.