Saudi Aramco Review 2019

Aramco enters Port Arthur deal

The agreement with Sempra LNG is a major step forward in Saudi Aramco’s long term strategy to become a leading global LNG player

 

Saudi Aramco’s US-based subsidiary Aramco Services Company has signed a heads of agreement with Sempra LNG for a piece of the action at its proposed Port Arthur LNG export plant.

Aramco has agreed to a 20-year offtake deal at 5 million tonnes per year, as well as a 25 per cent equity stake in Phase 1 of the project.  Phase 1 is expected to include two 5.5 million tonne per year liquefaction trains, amounting to 11 million tonnes of export capacity, and up to three LNG storage tanks.

Port Arthur Phase 1 has full US regulatory approval with the US Federal Regulatory Commission having issued its OK about a month ago. And there is also already a long-term deal for 2 million tonnes per year from Port Arthur with Poland’s PGNiG.

“If the deal is completed, this is likely to mean the Port Arthur facility can proceed to FID [final investment decision] by the end of 2019 or early 2020,” said Giles Farrer, Wood Mackenzie Research Director. “This deal will take total contract volumes ... [to] a level that should be sufficient to secure debt finance,” he said.

Sempra said that Port Arthur has the potential to add up to six more liquefaction trains in a latter phase, amounting to a total export capacity of about 45 million tonnes.

It had been expected that Saudi Arabia would follow rival Qatar into the US Gulf as Saudi Aramco builds a global gas strategy. Qatar and Exxon issued a final investment decision on their 15.6 million tonne per year Golden Pass LNG project in Louisiana in early February.

“The agreement with Sempra LNG is a major step forward in Saudi Aramco’s long term strategy to become a leading global LNG player,” said Amin Nasser, Saudi Aramco’s CEO and President. “With global demand for LNG expected to grow by around 4 per cent per year, and likely to exceed 500 million metric tonnes a year by 2035, 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,” he said.

Aramco traded its first LNG cargo, a sale into India, last month. “As the energy transition intensifies, we are seeing oil focused NOCs following major international oil companies by diversifying their exposure away from oil and into gas and LNG,” said WoodMac’s Farrer.

The offtake is unlikely to find its way back to the Arabian Peninsula because Saudi Arabia does not currently have an LNG import terminal. The country is working to boost domestic gas development—both to reduce the use of oil for power generation as well as to eventually export domestically produced gas.

“It’s unclear what the final destination of Saudi Aramco’s LNG will be,” said Farrer. “There continues to be a long-term expectation that, in time, Saudi Arabia will import LNG to be used for power generation. However, we expect that Saudi Aramco will use this volume to establish a global portfolio as it seeks to become a global gas player.”

Rivals for Saudi Arabia’s LNG affections are not worried.

“This is a nice small step toward evacuating the sea of natural gas we have in the US, especially the problematic associated gas from Permian oil production,” said Tellurian Chairman Charif Souki, who is also rumored to be seeking a Saudi investment for his 27.6 million tonne Driftwood project. “The industry needs at least another 100 million tonnes of additional capacity, so we still have a long way to go,” he said.

Industry observers believe Saudi Aramco has the ability to invest in more than one US LNG project.

Saudi dollars are also being sought for the remaining 10 per cent stake of Novatek’s 19.8 million tonne per year Arctic LNG-2 though that deal appears to be faltering as the sides have been unable to agree on commercial terms.

“Further moves into other major LNG provinces by Aramco are likely, with the company rumored to be interested in LNG-focused acquisitions in Arctic Russia, Australia and other markets,” said WoodMac’s Farrer.

Sempra’s other North American LNG projects include the three-train 12 million tonne Cameron LNG, which is under construction and expected to be sending out commissioning cargoes in the very near term. US President Trump visited Cameron LNG last week. Sempra is also developing the brownfield 7.6 million tonne Energia Costa Azul in Mexico.




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