Saudi Aramco Inks 20-Year Deal with Sempra for LNG Supply

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(PLN News Services) – Saudi Aramco signed a 20-year agreement to buy LNG from a forthcoming export terminal in Texas that U.S.-based Sempra Energy is developing, the two companies said .

The sale-and-purchase agreement for 5 mtpa of LNG is Saudi Arabia’s first known, nonbinding agreement to buy LNG and the largest such LNG deal since 2013, according to Wood Mackenzie.

The agreement is a major step forward in Aramco’s long-term strategy to become a global LNG player, said Amin Nasser, the company’s CEO. “With global demand for LNG expected to grow by around 4% per year … we see significant opportunities in this market, and we will continue to pursue strategic partnerships which enable us to meet rising global demand for LNG,” Nasser said in a news release.

Aramco will also buy a 25% equity stake in the first phase of the multibillion-dollar project, to be constructed in Port Arthur, Texas, about 90 miles from Houston, the companies said.

The Port Arthur facility is one of Sempra’s five LNG development opportunities in North America, and it received authorization from the Federal Energy Regulatory Commission to construct and operate the facility and related pipelines last month.

“Port Arthur LNG could be one of the largest LNG export projects in North America, with potential expansion capabilities of up to eight liquefaction trains or approximately 45 mtpa of capacity,” the companies said.

The U.S. has been a net exporter of natural gas every month for the past year, fueled by an increase in LNG exports, according to the U.S. Energy Information Administration (EIA). The largest markets for U.S. exports of LNG in 2018 were South Korea, Mexico and Japan, the EIA said.

Global LNG demand is expected to grow by about 5% a year through the mid-2020s, according to EIA projections. Since February 2016, when the United States started exporting the fuel from the Lower 48 states, it has become the world’s fourth biggest LNG exporter.

Aramco said it plans to boost its gas production to 23 billion standard cubic feet (Bscf/d) from about 14 Bscf/d now.

“Saudi Aramco has clearly been looking at both an LNG investment and long-term LNG purchase for some time. The market expectation was for Aramco to make a big move,” said Gary Regan, a consultant with consultancy Gas Strategies. “The Sempra deal would certainly be a bold move and one that shows long-term ambition.”

“This is by far and away the Saudis’ largest investment ever in LNG,” said Ira Joseph, head of gas and power analytics at S&P Global Platts. “The size of the deal, the volume of the LNG, is very out of step with size of LNG contracts that have been signed recently.”

The proposed first phase of the Port Arthur project will include two liquefaction trains, up to three LNG storage tanks and associated facilities, which should enable the export of about 11 mtpa of LNG.

Sempra said it plans to make a final investment decision to build the first phase of Port Arthur in the first quarter of 2020.

(Reporting by the Associated Press and Reuters)

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