Dummett, Ben; Wallace, Joe.Wall Street Journal (Online); New York, N.Y. [New York, N.Y]26 Nov 2020.
Centrica PLC, a major U.K.-based energy supplier, is trying to sell its portfolio of liquefied natural gas supply contracts and other assets, according to people familiar with the matter, as it seeks to simplify its operations amid volatile LNG prices.
The targeted value from such a deal couldn't be learned. However, similar recent transactions suggest that Centrica, the owner of energy and electricity service provider British Gas, may actually need to pay any potential buyer to take the LNG business off its hands, underscoring the uncertain outlook for gas prices internationally.
The sale effort comes after Centrica in July agreed to sell its North American energy supply, services and trading business, Direct Energy, to NRG Energy, Inc. for $3.6 billion.
The LNG business could offer potential buyers a quick, cheap way to enter the LNG market as an established player. Last year, Total SA struck a deal to acquire the noncore U.S. LNG business of Toshiba Corp. The Japan-based conglomerate paid the French energy major $800 million to take over its supply and transportation LNG contracts. At the time, Total said the acquisition fit its strategy to further expand its scale in the sector.
Any bet on Centrica's LNG business would come amid forecasts that natural-gas prices are poised to extend their recent rebound in 2021, following a yearslong slump that reached its nadir in June. The slide in crude-oil prices during the pandemic prompted U.S. energy companies to throttle back output, pinching gas supplies because many wells produce gas as a byproduct.
Centrica's LNG business comprises supply arrangements with U.S. exporter Cheniere Energy Partners LP and others as well as trading in gas cargoes. Heightened market volatility gave a boost to the company's LNG business in the first half of the year, helping to lift operating profits in the company's marketing division by close to fourfold to £115 million, equivalent to $154 million.
However, Centrica said that as of June 30, its 20-year gas contract with Cheniere had essentially no intrinsic value. The value of the deal—welcomed when it was signed in 2013 by then-U.K. Prime Minister David Cameron as a means of broadening the nation's energy mix—depends on the gap between gas prices in the U.S., and in Britain and Asia. Booming gas supplies and the growing market in LNG cargoes have helped to narrow those spreads.
Gas demand is expected to expand over the coming decades, as electricity producers turn to a commodity that is increasingly competitive with coal and considered cleaner than other fossil fuels. Global consumption of liquefied-natural gas will grow to 690 million tons in 2045 from 355 million metric tons in 2019, the Organization of the Petroleum Exporting Countries forecast in October . The LNG market has become increasingly flexible in recent years, with buyers turning to spot cargoes of gas instead of long-term deals.
Other than the Cheniere deal, Centrica's LNG contracts include an agreement signed last year with Tokyo Gas Co. Ltd. to jointly purchase 2.6 million tons per annum from a Mozambique LNG project. Under the deal, gas will be delivered until the early 2040s. In another deal signed this year, Centrica secured its first long-term supply contract in China, agreeing to deliver 0.5 million tons annually of LNG to the Shenergy Group Co. Ltd., a Chinese state-owned energy company. Deliveries are expected to commence in 2024.
Write to Ben Dummett at firstname.lastname@example.org and Joe Wallace at Joe.Wallace@wsj.com
Credit: By Ben Dummett and Joe Wallace