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LNG SPAs advance ahead of regulatory approvals

LNG Industry,

Analysis from Zeus Development has found that buyers and sellers of American LNG are more likely to proceed to full sales and purchase agreements (SPAs) in advance of regulatory approvals. This is largely the result of an increased emphasis on the value of North American natural gas to diversify international markets from Russian supplies.

Early LNG projects

Zeus LNG analyst, George Popps, commented: "For early projects like Cheniere's Sabine Pass Liquefaction and Freeport LNG, we saw SPAs or tolling agreements put in place only after the projects received non-FTA licenses. In the recent cases though, counterparties execute these agreements before licenses are issued."

Dominion's Cove Point and Sempra Energy's Cameron LNG projects negotiated long-term agreements for their capacity before the US Department of Energy (DOE) issued non-free-trade-agreement (FTA) authority.

Cheniere Energy's Corpus Christi liquefaction project has similarly signed a customer and is alleged to close to signing a second deal. Main Pass Energy Hub, an offshore project, reached a preliminary sales and purchase agreement in April 2013.

Non-FTA approval

Authorisation to export LNG to countries with which the US has a free-trade agreement is, by law, almost automatic. However, most LNG is consumed by non-FTA countries, such as Japan, Taiwan, China and India. It is these licenses that can take months, even years, to be approved.

Popps concluded: "Buyers and sellers are gaining confidence that the DOE will authorize projects and the Federal Energy Regulatory Commission will approve construction plans. The dynamics has shifted from where we were 12 months ago when the market was less certain of regulator objectives."

Adapted from press release by Katie Woodward

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