Sempra - Saudi Aramco Sale Deal Agreed for Port Arthur LNG

Sempra Energy and Saudi Aramco have announced their respective subsidiaries, Sempra LNG and Aramco Services Company, have signed a deal for a definitive 20-year LNG sale-and-purchase agreement for five million tonnes per annum (Mtpa) of LNG offtake from Phase 1 of the Port Arthur LNG export-project, currently under development. The deal also includes finalization of a 25 percent equity investment in Phase 1 of Port Arthur LNG. 

The proposed Port Arthur LNG Phase 1 project is expected to include two liquefaction trains, up to three LNG storage tanks and associated facilities that should enable the export of approximately 11Mtpa of LNG on a long-term basis. 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 45Mtpa of capacity.

If the deal is completed, it is likely to mean that the Port Arthur facility could proceed to final investment decision by the end of 2019 or early 2020. Sempra, the project sponsor, has already signed a two mmtpa deal to supply PGNIG from Port Arthur. This deal will take total contract volumes from the 11 mmtpa facility to seven mmtpa, a level that should be sufficient to secure debt finance.

Commenting on the deal, Giles Farrer, Wood Mackenzie Research Director, said: “If converted to a sales and purchase agreement (SPA), this will be one of the largest LNG deals ever signed and the largest deal signed since 2013. "This is a signal of Aramco's intent to become a global gas player and develop a broad LNG portfolio. As the energy transition intensifies, we are seeing oil focused national oil companies following major international oil companies by diversifying their exposure away from oil and into gas and LNG. Further moves into other major LNG provinces by Aramco are likely, with the company rumored to be interested in LNG-focused acquisitions in Arctic Russia, Australia and other markets.

“It's unclear what the final destination of Saudi Aramco's LNG will be. There continues to be a long-term expectation that, in time, Saudi Arabia will import LNG to be used for power generation. However, we expect that Saudi Aramco will use this volume to establish a global portfolio as it seeks to become a global gas player.

"To establish its LNG marketing operation, we expect Saudi Aramco to build on its broad expertise in crude oil and products marketing, while also leveraging Saudi Arabia's diplomatic ties. To facilitate this, Saudi Aramco recently started trading LNG, selling its first LNG cargo into India in April.”

Sempra received final Federal Energy Regulatory Commission (FERC) approval for Port Arthur in April and is likely to receive a final notice to proceed from this year. Bechtel is lined up to provide the EPC contract for the project.

Global demand for LNG is expected to grow by around four percent per year, and likely to exceed 500 million metric tons a year by 2035.