Saudi Aramco inks 20-year deal with Sempra for LNG supply

DUBAI/NEW YORK: Saudi Aramco signed a 20-year agreement to buy liquefied natural gas (LNG) from a forthcoming export terminal in Texas that U.S.-based Sempra Energy is developing, the two companies said on Wednesday.

The Saudi state oil giant plans to become a major global gas player, and this deal will provide it with access to some of the world's cheapest and most abundant natural gas via the U.S. shale boom.

Aramco has been developing its own gas resources and eyeing gas assets in the United States, Russia, Australia and Africa. Demand for supercooled LNG hit a record in 2018 at 42.1 billion cubic feet per day (bcfd), according to the International Gas Union, and growth is expected to keep rising as countries wean themselves off dirtier coal. One billion cubic feet of gas is enough to supply about 5 million U.S. homes for a day.

The sale-and-purchase agreement is for 5 million tonnes per annum (MTPA) of LNG, equivalent to about 0.7 bcfd of natural gas. This is Saudi Arabia's first known nonbinding agreement to buy LNG, and the largest such LNG deal since 2013, according to energy consultancy Wood Mackenzie.

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 (145 km) from Houston, the companies said.

"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.

Global LNG demand is expected to grow by about 5 percent a year through the mid-2020s, according to U.S. Energy Information Administration (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 (scf) a day from about 14 billion scf 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."

Sempra shares were up 2% at $134.23 in trading on the New York Stock Exchange on Wednesday afternoon.

ARAMCO PLANS FOR LNG

Aramco's trading arm sold its first LNG cargo on the spot market in late March to an Indian buyer, according to sources familiar with the matter.

A senior Middle Eastern-based trader said Saudi's LNG trading arm has yet to get off the ground despite the sale of an LNG cargo last month. The trader said Aramco has hired an LNG originator in Singapore to develop the business but is still looking for LNG traders.

"They are making lots of noise about LNG, but (it) seems more politically driven. So far no concrete action; no clear strategy," the trader said.

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.