Cheniere, Total agree to LNG export deal from Sabine Pass

An affiliate of French oil and gas company Total will buy liquefied natural gas from Cheniere Energy Partners’ Sabine Pass plant in western Louisiana under a $6.3 billion, 20-year contract.

The export deal announced Monday is good news for the partnership, a majority-owned subsidiary of Houston-based Cheniere Energy Inc., as it allows Cheniere to continue an expansion that adds export capability to the Sabine Pass LNG terminal. It already has several export authorizations in place.

But whether the broader liquefied natural gas industry is able to benefit in the long run is less clear. Morningstar analyst Allen Good said he doesn’t think it’s a major indicator of things to come.

“I think the bigger question is quantity of LNG exports, not if they will occur, which is likely a given at this point,” Good said. “Political hurdles still have to be overcome and this deal doesn’t change that.”

He said other companies “have a lot of projects that are on the drawing board right now that won’t go forward given lack of permitting or demand.”

Shares of Cheniere Energy rose 66 cents to close at $17.75.

The Sabine Pass LNG terminal went into service in April 2008 to import liquefied natural gas, able to regasify and send out 4 billion cubic feet of gas a day. It has 16.9 billion cubic feet of storage capacity.

The expansion would make the plant the first in the contiguous U.S. to be able to export liquefied natural gas.

The deal announced Monday is worth $314.3 million for Cheniere Energy on an annual basis, or $6.3 billion over 20 years, spokesman Andrew Ware said. The agreement has an extension option of up to 10 years.

“We believe that expansion in U.S. natural gas production owing to shale investments will continue, and will require the development of new markets such as LNG exports to accommodate growth for our domestic gas industry,” he said.

Cheniere said LNG will be loaded onto Total’s vessels for a purchase price indexed to the monthly Henry Hub natural gas price plus a fixed component.

Five liquefaction trains — as the production units are called — are being developed next to the existing Sabine Pass LNG terminal.  The first two trains are under construction and the third and fourth trains are expected to begin construction in 2013, Cheniere said.

Deliveries from train five are expected to occur as early as 2018, the firm said. It plans to file applications with U.S. regulators for the train five expansion next year, Ware said.

A previous agreement that takes advantage of Total’s berthing and storage capacity has made further expansion of the liquefied natural gas export capabilities at the Sabine Pass terminal possible, the company said.

Total is a leading producer in the liquefied natural gas sector, with interests in projects in Australia, Indonesia, Nigeria, Norway, Oman, Qatar, the United Arab Emirates, Yemen, Angola and Russia.

Cheniere has been moving swiftly to expand at the Louisiana site and secure liquefied natural gas export rights.

Department of Energy authorization is complete for the first four trains. Cheniere also has secured commercial agreements with other firms and financing.

The moves come even as political headwinds for the liquefied natural gas industry continue.

Chemical and manufacturing industry leaders have put pressure on the U.S. government to limit exports of the fossil fuel. They are worried that if the Energy Department approves too many export licenses, natural gas prices will soar, jeopardizing $90 billion in planned capital spending.

However, a report commissioned by the Energy Department has concluded that the U.S. would reap significant economic benefits by exporting more liquefied natural gas.