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Friday, January 28, 2011

Cheniere Energy Partners To Export Liquefied Natural Gas

Cheniere Energy Partners, L.P. subsidiary, Sabine Pass Liquefaction, LLC

Charif Souki, the chairman and chief executive of Cheniere Energy is investing $3 billion in upgrades at his liquefied natural gas (LNG) facility in Lousiana to export it in its liquid form. He is betting that he can profitably export cheap American natural gas to Europe and Asia, where prices are roughly twice as high. Cheniere plans to install two to four giant refrigeration units capable of cooling methane gas into liquid for shipment on giant cargo ships. Currently, only one American terminal, built in Alaska 30 years ago, can do that. Mr. Souki plans to start exporting gas as early as 2015.

He predicts he will eventually be able to export two billion cubic feet of liquefied natural gas a day from his facility, or about 3 percent of current domestic gas production. So far, investors like his ideas and have  rewarded Cheniere’s stock with a modest purchases. At today’s prices, companies would be able to buy American gas at $4.35 per million British thermal units, and then sell the same gas in Europe or Asia for roughly double that price, since long-term contracts globally are still largely tied to high benchmark oil prices.

New drilling techniques [hydraulic fracturing] have opened up vast shale rock fields to gas prospecting over the last few years, bolstering domestic production and adding significant reserves. That has made the import terminal a disappointment. Meant to receive 30 tankers a month, it only received a dozen all of last year. Much of that business was simply temporarily storing gas for re-export.

Morgan Stanley, ENN Energy of China, Gas Natural Fenosa of Spain, Sumitomo of Japan and EDF Trading of France have entered into memorandums of understanding with Cheniere to reserve processing capacity for export. Some influential investors, like the Blackstone Group, which invested $250 million in the form of a convertible debt security in the company in 2008, one of its largest share owners. (NYT, 1/27/2011)

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