America’s largest exporter of liquefied natural gas says it is struggling to sign long-term contracts with potential buyers as a result of turmoil in the market, throwing into question plans to expand its export facility on the Texas coast.
The comments on Tuesday from Cheniere Energy highlighted mounting problems for the more than a dozen companies vying to export more LNG through US ports.
LNG prices have plunged because new processing facilities have increased supply just as a warm northern hemisphere winter has crimped demand. Buyers are happy to snap up the supercooled fuel as needed on the international spot market rather than lock themselves into 15- or 20-year deals.
“Whether it be the coronavirus or a warm winter, the whole sense of urgency from the customers who sign long-term contracts has dropped,” Jack Fusco, chief executive, told analysts as Cheniere reported fourth-quarter results.
The company indicated it could delay a decision on a mooted “stage three” expansion of its export facility at Corpus Christi, Texas. Binding contracts are critical to obtaining loans for the project.
“I do think that market will be tougher for us to continue to get our fair share of those contracts and be able to commercialise stage three at this point,” Mr Fusco said.
A final investment decision would be made in 2020, Cheniere said. Previously it had said it planned to decide by mid-year.
“We will remain disciplined and not move forward with the project until we have sufficient commercial support to meet or exceed our investment parameters,” said Michael Wortley, chief financial officer.
Cheniere is an emblem of US energy abundance, having been the first to convert a gas import plant to handle exports at its terminal in Sabine Pass, Louisiana. The New York-listed company exported the equivalent of 4 per cent of US gas production last year.
LNG exports have expanded American influence in Europe, offsetting Russian power over gas customers, and created new ties to allies and trading partners in Asia.
As US companies try to execute potential new export facilities, other projects are also advancing from Canada to Mozambique. The amount of proposed capacity surpasses expected growth in consumption over the next five years.
The oversupply has emboldened utilities and power generators to get more gas on the spot market. “Better pricing and more flexibility have superseded security of supply on the priority list,” said Ira Joseph, head of gas and power analytics at S&P Global Platts.
In a sign of slack market conditions, Mr Fusco disclosed that two buyers had each cancelled an LNG cargo for delivery in April, without identifying them.
One of those is Naturgy, a Spanish utility that also trades natural gas, which cancelled one cargo for April earlier this month due to lower prices in the spot market, according to a person familiar with the matter. Naturgy has a long-term purchase contract with Cheniere but sold on its volumes to other users.
The American gas sector was encouraged last month when Washington signed a preliminary trade deal with China. Beijing committed to import $52.4bn in oil, gas and coal from the US over the next two years.
The economic damage from coronavirus, first discovered in China, has raised doubts whether the commitments will be fulfilled. Mr Fusco said he was awaiting “clarity on implementation and enforcement, especially in light of the coronavirus and what impact that may have on Chinese foreign trade in the near term”.
Cheniere reiterated guidance for earnings before interest, tax, depreciation and amortisation of between $3.8bn-$4.1bn in 2020, though Mr Wortley said low LNG prices pointed to the low end of that range. The Houston-based company earned net income of $648m in 2019, up 38 per cent on the previous year, on revenue of $9.7bn. Shares in the company fell 4 per cent to $49.86 in New York on Tuesday.
Additional reporting by David Sheppard in London
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February 26, 2020 at 02:55AM
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Cheniere faces buyer reluctance over long-term LNG contracts - Financial Times
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