May 25, 2020 [The San Diego Union-Tribune] – The economic downturn has taken a toll on the liquefied natural gas sector.
A little more than two weeks after Sempra Energy announced it was delaying a final decision whether to construct a massive LNG facility on the Gulf Coast of Texas because of the global slowdown, Reuters has reported Saudi Aramco has suspended plans to charter as many as 12 tankers from the project.
Sempra officials did not confirm the story, referring the Union-Tribune to Aramco, which did not respond to an email by the close of the business day Friday.
Justin Bird, Sempra LNG’s chief executive officer, said the San Diego-based Fortune 500 company remains optimistic about the company’s investments in exporting LNG to countries hungry for natural gas.
“More broadly, we remain confident that the market will need additional supplies of LNG in the mid-2020s, and we believe Sempra LNG projects are the leading candidates to supply this need,” Bird said in an email.
Through its shipping division Bahri, Aramco had expressed interest in chartering the vessels from 2025 as part of a larger effort by the Saudis to become an influential player in the natural gas market. Aramco may still charter the vessels at a future date but for now, markets are trying to settle in the wake of the pandemic, which has contributed to a drop in the price of natural gas around the world.
Analysts were not surprised the Saudis pressed the pause button.
“There is an oversupply of LNG right now and that creates uncertainty in the market, not just for Sempra,” said Andy Pusateri, a utilities analyst for Edward Jones. “Longer term, if there is increased demand from Asia, this could prove positive for (Sempra), but I don’t foresee a quick turnaround.”
The Port Arthur LNG project would take up nearly 3,000 acres of land along three miles of the Sabine-Neches waterway and has potential export capacity of 45 million metric tons per year, which would make it one of the largest LNG facilities in North America. Before the outbreak, Sempra officials expected to make a final decision to build the facility in the third quarter of this year.
Some 70 percent of Port Arthur’s offtake remains under preliminary agreement with Aramco and a separate deal with the natural gas company of Poland.
Sempra is already a majority owner of the $10 billion Cameron LNG facility on the Louisiana Gulf Coast, which opened last year. Starting in 2021, Sempra expects to earn $400 million to $450 million per year at Cameron.
The company’s subsidiary in Mexico, IEnova, operates an LNG import facility near Ensenada called Energía Costa Azul. It has plans to soon add a liquefaction and export component. A final decision on expansion is still scheduled by the end of next month, Bird said. The company is awaiting a permit from the Mexican government.
An export facility on the West Coast is considered lucrative because it could send LNG shipments to Asian markets in a shorter amount of time than U.S. facilities located along the Gulf of Mexico. Shipments would also bypass the Panama Canal, thus saving money on tolls.
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