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Sempra, Cheniere Await Rebound With Cash and Shovels

Copyright © 2021 Energy Intelligence Group

US LNG export leaders, Sempra Energy and Cheniere Energy say they are waiting out the Covid storm, setting aside revenue from existing projects to move ahead on expansion plans once the economic downturn lifts. "Not only have we navigated the continued direct and indirect challenges of Covid-19 in a difficult global LNG market, but also the added challenges of two major hurricanes recently making landfall,” said Cheniere CEO Jack Fusco said during the company's third-quarter earnings call. Cheniere exported only 55 cargoes in the third quarter, compared to 108 in the same period of last year, as market-driven cancellations mounted before easing off later in the quarter, Fusco said (NGW Aug.31'20). Cheniere's 4.5 million ton per year (0.64 billion cubic feet per day) Corpus Christi Train 3 is now 97% complete. Feed gas was introduced into the Texas train in October with first LNG expected "in the coming weeks.” Its Sabine Pass Train 6 is about 71% complete with operation expected in the second half of 2022. But the proposed seven-train, 10 million ton/yr (1.4 Bcf/d) Corpus Christi Stage 3 expansion project faces a fresh competitor -- from inside. Improved liquefaction train run rates have added a total of about 7 million tons/yr (just under 1 Bcf/d) of additional LNG, "or virtually an entire additional train,” said Fusco, adding that "we have incremental volume to sell prior to sanctioning any new infrastructure." But that expansion is not off the table. “Make no mistake, Corpus Christi Stage 3 is shovel-ready and one of the most cost-competitive LNG projects worldwide,” Fusco said. “But we are committed to capital discipline and will only sanction that project when it meets or exceeds our financial capital investment parameters.” Costa Azul Advances Justin Bird, CEO of Sempra LNG, feels similarly about future projects. “We will not develop a project until the market is ready for it,” he told his company's third-quarter earnings call. Sempra had been the most bullish North American LNG developer with a overall target of having 45 million tons/yr (about 6 Bcf/d) of export capacity. While that ambition remains, the project slate has been pushed back by market conditions. Only one Sempra project is expected to get a final investment decision (FID) before 2020 is out -- the 3.25 million ton/yr year (0.4 Bcf/d) Energia Costa Azul project on Mexico's Pacific Coast. The project got a strong leg up Friday when Mexican President Andres Manuel Lopez Obrador said he is agreeable to granting the project the 20-year export permit subject to a key condition -- the company must help offset a natural gas oversupply in the area. Sempra has been waiting for almost a year for the permit, the first of its kind for a private company in Mexico. Lopez Obrador explained the area's excess gas supply stems from the fact that the region's state-owned power plant burns fuel oil instead of natural gas. He said that under the previous administration, Mexico's state energy company had signed contracts for natural gas assuming that the plant would need it. "If we stop buying all that gas that is not used and that we have to pay for, and if [Sempra] helps us export that gas via that plant in Ensenada, then we'd give the permit," Lopez Obrador said. The government had previously floated a plan for a second LNG export terminal in the area that it would support. Meanwhile, Cameron LNG’s operating three-train, 12 million ton/yr (1.7 Bcf/d) Phase 1 is expected to provide the funds for the two-train, 9 million ton/yr (1.3 Bcf/d) Phase 2. Sempra’s annual take at Cameron is expected to be around $400 million-$450 million. “We are continuing to work with partners on optimizing the design of that Phase [2]," Bird said. Separately, at Sempra's Port Arthur LNG on the Texas Gulf Coast, "we're evaluating efficient financing options,” Martin said of the proposed 11 million ton/yr (1.6 Bcf/d) export terminal. “We're continuing to co-develop with Saudi Aramco and we think Port Arthur really has the opportunity to be not only successful [in the] first phase, but truly one of the great LNG megaprojects in the world.” Demand Growth Expected Both Sempra and Cheniere painted rosy market pictures going forward. “Most consultants predict well over 200 million tons/yr of incremental LNG needed in the market by 2040, even under the [low-case] sustainable development scenario,” said Cheniere Executive Vice President and Chief Commercial Officer Anatol Feygin. China is of particular interest. “It's a market that we have been focused on almost as soon as we became an operating company with our Beijing office opening up in 2017,” said Feygin, in response to reports of a fresh LNG export deal with China's Foran Energy. He does not see that deal as a one-off. "We think that this is a cadre of companies that we've engaged with for years and look toward continued success and continued traction there," he said. Cheniere is also optimistic about the progress of China's infrastructure company PipeChina, as free market pricing would allow for an LNG import-based supply response in the event of demand surge. As far as long-term contracts rolling off over the next few years elsewhere in the world, "I think we'll get our fair share of some of those contracts," Feygin said. Bird's Sempra said the market is "seeing continued growth in US LNG exports this year, clearly dampened a bit by the hurricane season, but it looks like US LNG exports could set a record in November. It's really being underpinned by increasing demand ... we're also seeing stronger prices in Europe. Prices in Asia have actually tripled since the summer, and we really think it's a demonstration that LNG demand growth is driven by recovery in global GDP." Sempra sees a near-term lack of FIDs that "will create a situation where demand will exceed supply. And we see that continuing." Engie Pullout Not a Concern As for whether climate issues might continue to impact demand for US LNG in Europe, Martin said he was not particularly concerned about French Engie's recent rejection of an LNG deal with US-based NextDecade (NGW Nov.9'20). “I view it as a red herring," said Martin, noting that Engie is in a different position than current Sempra partner Total, also based in France. “I don't see any read-through." Cheniere isn't worried about the Engie deal, either. "We have two very large French companies that are long-term foundation customers," said Feygin, noting that the issue "hasn't come up with us yet. But we're anticipating it" with the company's own environmental efforts. “We are confident that natural gas, and particularly LNG, has a key role to play in the global transition to a lower-carbon future given its place at the intersection of reliably powering economic activity and providing a cleaner energy source,” said Fusco. Beyond that, “we are methodically reviewing our business to quantify our life-cycle emissions and to identify and analyze climate-related opportunities across our value chain.” But India's Petronet will not invest in Tellurian's Driftwood LNG project in the US because it doesn't need firm supply from anyone in a world awash in LNG at "throwaway prices," Vinod Kumar Mishra, finance director and acting CEO of the Indian company said Thursday. Petronet had signed a memorandum of understanding in 2019 with Tellurian to invest in the project and take up to 5 million tons of LNG per year (685 MMcf/d) for 40 years. The MOU, which was seen as key to underpinning Driftwood's first phase, was extended for two months in March (NGW Mar.2'20). Located near Lake Charles, Louisiana, Driftwood would have a nameplate production capacity of 27.6 million tons/yr (3.8 Bcf/d). Michael Sultan, Washington and John Sullivan, Houston

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