February 28, 2023

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Sempra on Cusp of Port Arthur Green Light

Sempra is on the cusp of giving the go-ahead to the 13.5 million tons per year Port Arthur LNG Phase 1 project on the Texas Gulf Coast.

Sempra's long-held target of a final investment decision (FID) before the end of the first quarter of 2023 remains in place for the project, which has come a long way from Sempra's "back burner," where it was before the war in Ukraine began.

Sempra recently completed the marketing phase for Phase 1, which is now "fully subscribed" with 10.5 million tons per year of definitive, long-term contracts with top-tier counterparties, Justin Bird, CEO of subsidiary Sempra Infrastructure Partners (SIP), said Tuesday on the company's fourth-quarter earnings call.

"With the completion of marketing and execution of the EPC contract, we're now focused on finalizing the project level debt and equity financing," said Bird, adding that "we aim to efficiently raise lower-cost capital and protect [SIP's] investment-grade balance sheet."

'Right Balance'

The idea is to have SIP ownership in the project at between 20% and 30% with ConocoPhillips owning 30% and the balance being sold in the form of a non-controlling interest to one or more investors — including two of SIP's equity holders.

"As we approach FID, we continue to focus on striking the right balance of efficient financing, risk mitigation and retention of upside from future project cash flows and earnings," Bird said.

The company is focused now on lining up non-recourse debt and selling down equity. It has Abu Dhabi Investment Authority (ADIA) and KKR, which will "have an important role in helping us move this project forward," Sempra Chairman and CEO Jeff Martin said. ADIA and KKR were brought on board in 2021.

SIP is also keeping in sight Port Arthur Phase 2, previously touted as a same-sized project as Phase 1 but now estimated at between 6 million tons and 13 million tons, according to the company's latest earnings presentation.

US LNG Firing on All Cylinders

The largest US LNG players — Cheniere, Venture Global and Sempra — have all seen a strong start to 2023, with Cheniere starting work on another 20 million tons of capacity as it pushes toward a 90 million ton per year portfolio. Venture Global landed a fresh pair of offtake deals last week and another with Excelerate this week.

Not to be outdone, Martin started his company's fourth-quarter earnings call with a focus on LNG, saying Sempra signed up more long-term deals in the fourth quarter of 2022 than any other market participant.

"US LNG exports will more than double by the end of the decade," he predicted.

Martin noted interest from both Asian and European LNG buyers. Despite "a really unique situation in Europe" that has most Port Arthur Phase 1 contracts more Europe-focused, "the long-term market opportunity remains an Asian opportunity," he said, citing the immense buildout of coal-fired plants in both China and India.

Sempra's Other Projects

Meanwhile, Sempra's other LNG export projects continued to motor along. The company said operations at the nameplate 13.5 million ton/yr Cameron LNG Phase 1 in Louisiana exceeded production targets.

The 7 million ton/yr Cameron LNG Phase 2 "remains on track," said Bird, with the US Federal Energy Regulatory Commission providing a favorable environment assessment, "which is a positive step toward securing the final authorizations." Offtake is 100% subscribed via existing partners and heads of agreement.

Bird said a competitive front-end engineering and design process is on track to be completed this summer and "we would expect to make a final investment decision shortly thereafter."

Sempra continues to expect the Mexico-based Energia Costa Azul (ECA) Phase 1 to start operations in the summer of 2025. ECA LNG Phase 2 and Vista Pacifico LNG, also in Mexico, continued to progress, the company said, with preliminary offtake agreements already in place.
Michael Sultan, Washington

Excelerate to Buy LNG from Venture Global Project

Excelerate Energy has signed a deal to buy LNG from Venture Global’s Plaquemines LNG export facility in Louisiana for a 20-year term.

Under the sales and purchase agreement (SPA) announced Tuesday, Texas-based Excelerate will purchase 0.7 million tons per year on a f.o.b. basis from Plaquemines Phase 1, a 10 million ton per year project that is under development on the US Gulf Coast.

The deal comes days after China Gas said it was buying 1 million tons/yr from Plaquemines, which is under construction, and another 1 million tons/yr from Venture Global’s CP2 LNG export facility, which is expected to see a final investment decision this year.

The Excelerate SPA brings the volume of offtake deals from Plaquemines’ Phase 1 to 7.2 million tons/year, or 72% of available capacity.

Excelerate, primarily a developer of floating storage and regasification units (FSRU), called the deal “an important milestone as we continue to execute our growth strategy to … offer more flexible and cost-effective products to existing and new customers in downstream markets."

Venture Global CEO Mike Sabel said his company “is thrilled to launch this new collaboration with Excelerate, a leader in the FSRU industry, as their inaugural long-term LNG supplier."

“Their foresight and transformational work to bring much-needed energy infrastructure to markets around the globe has enabled countries from Europe, the global south, and the developing world to fuel switch from coal to natural gas while lifting millions out of energy poverty,” Sabel said.

This week, Venture Global said it had successfully raised the roof of the first LNG storage tank at Plaquemines, the first of four tanks that will eventually be placed into service.

When operational, the tank will be capable of storing 200,000 cubic meters of LNG, the company said.
Mark Davidson, Washington

New Financing Hurdles for Tellurian's Driftwood LNG?

Reports that Tellurian’s $12.5 billion Driftwood LNG project on the US Gulf Coast is in further jeopardy continue to swirl around the LNG industry.

An exit by Swiss-trader Gunvor from a 10-year commitment to buy LNG before Tuesday's deadline for financial close would not prove fatal, but it could prove a challenge in securing future financing.

Swiss-based trader Vitol and supermajor Shell, which like Gunvor signed similar 10-year sales and purchase agreements in 2021, have already exited Driftwood.

Those three deals were arguably holding back the beleaguered project from moving forward given their relatively short contract durations and an outdated indexation scheme to Dutch TTF and JKM.

Neither Tellurian nor Gunvor would comment Tuesday, and industry sources insist that neither firm has chosen to terminate its partnership.

Tellurian has set its sights on an 11 million ton per year Phase 1 for Driftwood using an integrated gas-and-LNG model that has a relatively high buy-in cost on the front end but cost certainty of supply going forward.

The company’s cash reserves relative to current debt "provide a continued runway for management to work on commercializing Driftwood, though dilution concerns still linger," according to a note from Evercore ISI this month. Tellurian resumed talks with Indian LNG buyers in October.

India’s Gail said this month that it proposed buying up to a 26% stake in a US LNG project.

Driftwood needs to raise $1.5 billion in mezzanine financing, $7 billion in project debt, and about $3.2 billion in equity, co-founder Charif Souki confirmed in a Feb. 14 broadcast.

But noting the approach of the Feb. 28 expiration of Gunvor's offtake deal with Tellurian, Evercore believed that "for all intents and purposes, we are at a de facto restart on commercialization." The company "will still have to find new substantial offtake partners and material equity stakeholders. A large international oil company would seem to be the most expedient solution, but finding one has, to this point, been a daunting challenge."

Tellurian reported a net loss of $49.8 million, or $0.09 per share, for the year ended Dec. 31, 2022, compared to a net loss of $114.7 million, or $0.28 per share, for 2021.
Tom Pepper, London

Enagas, Reganosa Strengthen Spain's Gas Network

Spanish grid operator Enagas and LNG terminal operator Reganosa have reached an agreement that will see the former acquiring a regional pipeline network from Reganosa, while the terminal operator will purchase a 25% stake in Enagas’ El Musel LNG terminal, the companies announced on Feb. 28.

Enagas will pay €54 million ($57 million) for Reganosa’s full pipeline network in the northern Spanish region of Galicia.

The 130 kilometer (81 mile) long pipeline is a key piece in guaranteeing the supply security of the Iberian gas network, connecting the Mugardos LNG terminal with the Tui-Llanera pipeline and suppling gas to various combined-cycle power plants in the region.

Enagas has committed to further develop this pipeline infrastructure and its interconnection with neighboring Portugal, with the view to utilize the pipeline for future hydrogen transports.

“This is a historical agreement that reinforces the strategy of both companies and strengthens the Spanish Gas System. The agreement will also contribute to reinforce the potential of the El Musel terminal and promotes our investment plan in Galicia,” said Arturo Gonzalo, CEO of Enagas.

El Musel Farm-in

For its part, Reganosa, operator of Spain’s Mugardos and Germany’s recently inaugurated Brunsbuttel floating LNG terminals, will pay €95 million for the 25% in the El Musel terminal, located in the northern Spanish port of Gijon, which until now was fully owned by Enagas.

The facility is expected to begin operation in the coming months — following a 10-year hibernation — once it receives the final ministerial approval and official authorization.

The terminal is expected to function as a “storage-only” facility for cargo reloads to supply other countries with LNG, particularly in northern Europe.

It counts two LNG storage tanks, each with 150,000 cubic meters of capacity, meaning that it can store roughly two cargoes at any given time.

It is understood that Reganosa was keen to make an equity investment in the terminal, given that both Mugardos and El Musel are located on Spain’s northern coast, within 300 km from each other, essentially making El Musel a potential direct competitor for the company’s Mugardos LNG import facility.
Daniel Stemler, Madrid


In Brief

Asian Spot LNG Pricing Stays Put

Spot LNG prices in Northeast Asia were stable at $14.70 per million Btu, according to Energy Intelligence assessments for deliveries four to eight weeks ahead. In Southwest Europe, spot LNG prices continued dropping by 90¢ week on week to $12.70/MMBtu.

Asian spot LNG prices were supported by a flurry of tenders coming out of South and Southeast Asia over the past couple of weeks. Demand continues muted in Northeast Asia due to comfortable LNG inventories.

Such a level of activity has not been seen for months. The high price environment after Russia’s invasion of Ukraine prompted significant demand destruction in the region and a shift from LNG to other cheaper fuels like coal and high-sulfur fuel oil.

Created with Highcharts 9.0.0($/MMBtu)REGIONAL SPOT PRICESNortheast AsiaSouthwest EuropeMar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Dec '22Jan '23Feb '23Mar '23Mar …020406080Energy Intelligence

Marc Roussot, Singapore and Daniel Stemler, Madrid


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India11.6712.0511.7512.0311.4211.2712.4111.0312.3411.7811.1510.9311.22
Sodegaura, Japan12.5413.6513.6713.7212.539.7613.3611.6813.2614.0011.9311.2212.65
Zeebrugge, Belgium13.6612.3412.0412.3913.2513.5412.9512.0112.8412.0413.3612.6313.44
Huelva, Spain12.0710.8010.5210.8511.6511.5111.3710.4111.2710.5111.7110.9311.72
Isle of Grain, UK13.7712.4512.1512.4913.3913.6513.1512.1212.9512.1513.4712.7413.55
Everett, US1.470.210.490.251.221.110.010.850.68-0.081.63----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback26. Sep10. Oct24. Oct7. Nov21. Nov5. Dec19. Dec2. Jan16. Jan30. Jan13. Feb27. Feb1020304050Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia14.7014.700.09--
SW Europe12.7012.70-0.44--
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.022.752.732.07
NBP, UK (futures)-0.1613.8914.0514.44
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-0.1414.7114.8515.12
Zeebrugge (Belgium)----11.5311.75
German NCG-0.0113.3613.3713.61
NBP (UK)0.1214.5514.4314.82
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.042.512.552.10
Corpus Christi, Texas0.062.382.32--
Cove Point, Maryland-0.092.372.461.83
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.022.752.732.07
Second Mth0.012.862.852.18
Third Mth0.013.043.022.32
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaMar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Dec '22Jan '23Feb '23Mar '23Mar …0255075100125Energy Intelligence