Blackstone commits $2 billion to Cheniere gas-export plant

Cheniere Energy Partners LP, operator of the largest U.S. natural gas-import terminal, said Blackstone Group LP agreed to invest $2 billion toward construction of a $10 billion plant to export the fuel.

The investment by the New York-based private equity firm may help convince creditors to lend the rest of the money needed to begin construction of the facility in southwest Louisiana. Cheniere, which has been seeking to add export capacity to its import terminal since 2010, plans to begin construction by the end of June, Chairman and Chief Executive Officer Charif Souki said in a statement.

A flood of gas from shale and other unconventional North American rock formations produced a surfeit of the furnace and factory fuel that pushed the price to the lowest in a decade. ConocoPhillips, Apache Inc. and Sempra Energy are advancing plans to ship gas in liquid form aboard tankers to overseas markets such as Japan and Spain, where it commands higher prices.

“The U.S. now has some of the cheapest gas in the world,” Leonard Coburn, president of Washington-based Coburn International Energy Consultants LLC, said in a telephone interview. “The gas glut has got people seriously talking about exporting.”

Breakup Fee

Blackstone agreed to buy 111 million new senior subordinated paid-in-kind units for $18 each, according to the statement. Final terms are contingent on Cheniere securing debt financing for the first two of four planned liquefaction units.

Cheniere is required to pay a $50 million breakup fee to Blackstone if the $2 billion investment falls through and Cheniere finds a new equity investor within 12 months, according to a U.S. Securities and Exchange Commission filing by Cheniere today.

Cheniere expects to obtain the remaining financing by March 31, according to the statement. Exports will get under way from the first two liquefaction units in 2016, the company said. Gas can be super-cooled to liquid form for shipment via tankers to markets too remote for pipeline delivery. If built, Cheniere’s export plant would be the first in the continental U.S.

Souki, 59, has been selling equity and signing sales agreements with European and Asian energy companies to avoid a cash crunch and attract financing for the project.

Customers for Gas

Last month, Cheniere Energy Inc., 90.6 percent owner of Cheniere Energy Partners, used the proceeds from a December offering to repay the $298 million principal balance on a term loan due in May. The payment cut Cheniere’s outstanding 2012 debt to $204.5 million.

The Cheniere Energy Partners units that Blackstone is buying will pay 4.2 percent interest quarterly and convert to common units once the first two sections of the plant begin commercial operation. The partnership will use cash from the sale to buy the 94-mile (151-kilometer) pipeline that connects the terminal to the U.S. gas pipeline network from Cheniere Energy Inc., according to today’s statement.

Cheniere already has customers lined up to buy gas from the Sabine Pass plant, including Korea Gas Corp., BG Group Plc, Gas Natural SDG SA and GAIL India Ltd.

Cheniere Energy Partners rose 5.7 percent to $22.08 at 9:54 a.m. in New York. Cheniere Energy Inc. rose 13 percent to $15.86.