World buyers line up to buy US natural gas
World buyers line up to buy US natural gas
Up to a dozen long-term deals, each worth billions of dollars, have been penned behind closed doors with companies in China, Japan, Taiwan, Spain, France and Chile as global demand spikes, according to company, industry and trade sources.
Through the agreements, China in particular has emerged as one of the biggest beneficiaries of cheap American natural gas that in the coming years will be piped to Gulf Coast plants and liquefied for shipment abroad in tankers.
The unannounced deals, which amount to about 2 percent of daily US supply, are not the first of their kind, and they depend on US government approval to construct two new liquefied natural gas (LNG) plants.
But the number of new buyers, and their global scope, show how the US is taking steps to becoming a major export hub by stealing ahead of rivals in Australia and East Africa, successfully wooing needy Asian buyers even before projects begin construction. Global competition may squeeze profit margins on some exports of US gas.
Companies like Britain’s BP and France’s GDF Suez, already committed to taking LNG from the US, are now finding multiple buyers willing to take tranches of supply.
“As we see more contracts getting signed, it’s an indication that the US has really cheap natural gas that will help supply the global market,” said Jason Bordoff, director at the Center on Global Energy Policy at Columbia University.
The US is producing record amounts of natural gas thanks to a drilling boom, and more than a dozen export projects have been proposed. But large domestic users of natural gas such as the petrochemical industry are worried that unfettered exports could push prices higher at home. The Obama administration has been approving exports on a case-by-case basis.
So far, only four projects are allowed to export across the globe and only one is under construction.
Cheniere Energy’s Sabine Pass project in Louisiana, expected to begin shipments late in 2015, has sealed deals with importers in Europe and Asia over the past two years.
This latest batch of gas sales will be exported from Sempra Energy’s Cameron LNG plant in Louisiana and the Freeport LNG plant in Texas, sources said. Both plants are expected to begin operations by the end of the decade, pending approvals.
Sempra is still waiting on permits to construct the Cameron plant, and to export the gas to countries with which the US does not have a free trade agreement. Freeport has full export approval, but is yet to begin construction.
Securing buyers early can make or break an LNG project. Without buyers, a project will not receive financial backing or be built.
GDF Suez, which acquired export rights at Cameron last year, has agreed to sell all of its 4 million tons per year of capacity to buyers in Japan, Taiwan, China and Chile, according to a review of deals confirmed by industry sources.
Japan’s Mitsubishi 8058.T and Mitsui, also with export rights at Cameron, have separately targeted major buyers such as Spain’s Repsol, France’s Total and Japanese utilities.
Mitsubishi is to sell a significant chunk of LNG to its own trading arm in Singapore.
Sources said Japanese buyers were reluctant to commit to large deals while the fate of its nuclear fleet remained uncertain after the 2011 Fukushima disaster.
Mitsubishi is also in talks with Indian Oil Corp. to sell 1 mtpa of LNG for its planned terminal at Ennore in southern India, a company executive said. Exact volumes may be adjusted.
Sempra hopes to make a final investment decision to build the Cameron plant later this year. Once that decision is made, the deals agreed by GDF Suez, Mitsui and Mitsubishi automatically become formal sales agreements, industry sources said. The San Diego-based company expects to win export approval from the US Department of Energy before April.
Meanwhile, BP is in talks to export LNG from the Freeport plant to China National Offshore Oil Corporation (CNOOC), giving the British company a foothold in the world’s largest energy consumer. This and older deals with other exporters will soon make China one of the largest importers of US gas.
BP has a further deal to supply Japanese utility Tepco with 0.5 mtpa, sources said.
BP declined to comment. Mitsui and its prospective Japanese utility customers Kansai Electric and Tohoku Electric also declined comment.
For a full list of deals, see table.
More than 12 million tons per year (mtpa) of LNG would be exported from the United States under the deals, or around 1.5 billion cubic feet per day of gas, though some volumes may alter in final negotiations, sources said. US daily production is about 70 billion cubic feet.
“These deals will send a signal that there is still strong demand for US LNG volumes,” said Andres Rojas, analyst at Waterborne Energy in Houston.
GDF was also in talks with Thailand’s PTT but these were abandoned after a failure to agree terms last year, a senior PTT source said. Mitsui also broke off talks with South Korean importer GS Caltex, a source at the company said.
Despite these recent deals, sellers have found it harder than expected to find new buyers, and have had to offer favorable terms when they do.
A projected LNG supply spike between 2016-2020 from North America, Australia, east Africa, Russia and Asia has empowered buyers to push down the price of long-term deals being negotiated now.
This is partly reflected in the low profit margins US exporters stand to make from many of the recently concluded agreements.
“The US is not the only gas producer, so we are competing in a market with countries like Qatar, Malaysia, Australia and potentially East Africa,” Bordoff said.
“There is not infinite demand. There is only so much supply that the global market can take.”
In its first long-term LNG deal into Asia, GDF Suez is selling 0.8 mtpa to Taiwan’s CPC from 2018 at barely breakeven levels.
According to the price formula reviewed by sources, CPC will pay around $12 per million British thermal units for the gas in the first year of the contract, a steep discount to the $16 its pays for LNG prices in Asia linked to oil.
Moreover, America’s edge over rivals could easily dim should domestic gas prices rise nearer to pre-shale boom levels and crude oil prices simultaneously drop to around $80 a barrel.
At those levels, LNG deals linked to oil begin to look globally competitive, handicapping buyers of American gas.
Bearing these risks in mind, buyers nevertheless want limited exposure to US LNG primarily as a way of negotiating down prices in oil-indexed, long-term contracts with Qatar and Australia.
Airbus sees regional demand for A220
- Airbus acquired a majority stake in the C-Series program in October officially rebranding it in April to the A220
- The US low-cost carrier JetBlue last week became the first purchaser of the aircraft since its rebrand
FARNBOROUGH: Airbus Chief Commercial Officer Eric Schulz has played up the prospects for the Bombardier C-Series aircraft in the Middle East and beyond, hoping carriers will use the single-aisle plane to expand routes.
The European plane maker acquired a majority stake in the C-Series program in October, officially rebranding it in April to the A220, strengthening its offering in the smaller jet sector in competition with arch-rival Boeing.
“Yes, I believe we’ll see orders in every region,” Schulz said when asked about the prospects for Middle Eastern orders for the plane.
“There are many people across the Middle East who are looking at the opportunity to integrate the A220 as a feeder to leverage their routes up to a point where maturity can be on with the single aisle.”
Schulz spoke to Arab News on the second day of the UK’s Farnborough International Airshow, which marked the rebranded A220’s first public appearance.
The US low-cost carrier JetBlue last week became the first purchaser of the aircraft since its rebrand, with an order for 60 of the single-aisle planes.
Airbus on Tuesday announced a commitment from what it described as “a new US airline startup” for 60 A220-300 aircraft, with deliveries due to begin in 2021.
The new airline is backed up by a group of experienced investors led by JetBlue founder David Neeleman, who is also an investor in TAP in Portugal and the controlling shareholder in Brazil’s Azul airlines.
The single-aisle market is expected to dominate commercial plane orders over the next 20 years, according to forecasts released by Boeing on Tuesday.
The US manufacturer expects demand for 31,360 single-aisle planes — representing nearly three quarters of total orders — over the period, an increase of 6.1 percent compared with similar forecasts published last year.
“This $3.5 trillion market is driven in large part by the continued growth of low-cost carriers, strong demand in emerging markets, and increasing replacement demand in markets such as China and Southeast Asia,” Boeing said.
In the face of such growth prospects, Boeing earlier this month agreed to takeover the commercial jetliner business of Brazil’s Embraer, a specialist in smaller passenger planes, in order to better compete better with Airbus in the segment.
Schulz downplayed suggestions of a downturn in orders from Middle East carriers, suggesting that any slowdown in orders from the region’s larger players would come alongside an uptick from other carriers.
“There might be a little bit of a slowdown for some airlines, and there is also some growth for others,” Schulz said.
“We are serving the market, and what we need to do is just continue to serve the market and take the opportunities and the challenges where they are and just deal with them.”
Schulz said that Airbus was “moving forward” with the details of its $16 billion A380 deal with Emirates struck in January.
The deal with the Dubai-based carrier for 36 additional superjumbo planes, the last major deal agreed by Schulz’s predecessor John Leahy, was seen as saving the beleaguered aircraft program, which has struggled to secure new orders.
“Clearly the relationship is fantastic,” Schulz said, having met with Emirates CEO Tim Clark on Monday.
“Clearly they have put a lot of emphasis on the opportunity that their A380 fleet is giving them. They need the plane, we need the plane to be delivered, and yes, it’s all aligned.”