Wood Mackenzie comments on largest LNG deal in six years

The HOA anticipates the negotiation and finalisation of a definitive 20-year sale and purchase agreement (SPA) for 5 million tpy of LNG from the Port Arthur LNG project, which is currently under development.

Commenting on the HOA, Giles Farrer, Wood Mackenzie Research Director, said: “If converted to an SPA, this will be one of the largest LNG deals ever signed and the largest deal signed since 2013.

“This is a signal of Aramco’s intent to become a global gas player and develop a broad LNG portfolio. As the energy transition intensifies, we are seeing oil focussed NOCs following major international oil companies by diversifying their exposure away from oil and into gas and LNG.

“Further moves into other major LNG provinces by Aramco are likely, with the company rumoured to be interested in LNG-focussed acquisitions in Arctic Russia, Australia and other markets.

“It’s unclear what the final destination of Saudi Aramco’s LNG will be. 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.

“To establish its LNG marketing operation, we expect Saudi Aramco to build on its broad expertise in crude oil and products marketing, while also leveraging Saudi Arabia’s diplomatic ties. To facilitate this, Saudi Aramco recently started trading LNG, selling its first LNG cargo into India in April.

“If the deal is completed, this is likely to mean the Port Arthur facility can proceed to FID by the end of 2019 or early 2020. Sempra, the project sponsor, has already signed a 2 million tpy deal to supply PGNIG from Port Arthur. This deal will take total contract volumes from the 11 million tpy facility to 7 million tpy, a level that should be sufficient to secure debt finance. As such, we expect debt raising to now be accelerated to facilitate FID.

“With the facility now looking more likely to go ahead, other buyers may now choose to sign up to buy LNG from the project too.

“Sempra received final FERC approval for Port Arthur in April and is likely to receive a final notice to proceed from the FERC over the course of 2019. Bechtel is lined up to provide the EPC contract for the project.

“We expect Saudi Aramco will have been attracted to sign up with Port Arthur ahead of rival US LNG export projects due to the fact that Sempra is an established energy player with a long history of infrastructure ownership and development. The EPC wrap provided by Bechtel, and its strong project delivery reputation, provides further credibility too.”

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