'Huge push' from customers drives Sabine Pass expansion Cheniere

Cheniere Energy Inc. is already working to commercialize a major expansion of its flagship Sabine Pass export terminal that it announced Feb. 23, with executives saying they do not view a lengthy permitting process as an impediment to marketing the project and its proposed production capacity of 20 million tonnes per year of liquefied natural gas.

Cheniere President and CEO Jack Fusco said extreme volatility in the global LNG market over the past year made clear the need for additional LNG production capacity to address what the executive described as "years of underinvestment in infrastructure." Executives also pointed to strong interest in contracting for U.S. LNG supplies.

"The infrastructure is there at the facility, and there's a huge push and pull from the customer base worldwide," Fusco said during a Feb. 23 earnings call.

Near-term dynamics have depressed global LNG prices, including robust European storage inventories and relatively tepid demand in Asia. The Platts Gulf Coast Marker for U.S. free-on-board cargoes loading 30-60 days forward was assessed at $12.425/MMBtu, down from more than $70/MMBtu in August 2022. But global LNG prices remain high relative to historical norms.

"The value of that long-term contract the stability, reliability and getting these volumes at a quarter or a third of that headline price has never been clearer than it was throughout 2022, so we are very encouraged by what we are seeing," Cheniere Chief Commercial Officer Anatol Feygin said.

"We don't see it as a disadvantage that we don't have the full 20 million tonnes approved today," Feygin said.

Federal review

Cheniere outlined its plans for the expansion in a filing at the Federal Energy Regulatory Commission requesting to enter the agency's prefiling review process (PF23-2). The company said it plans to follow-up with a formal application in the fourth quarter and would like approval by 2025. Cheniere expected to start construction in late 2025, with a "longstop date" for full in-service in the second half of 2032, although the project could be built in stages, and individual trains may enter service sooner.

The expansion would entail three natural gas liquefaction trains, each designed to produce about 6.5 Mt/y, along with two storage tanks and associated facilities, including a boil-off gas re-liquefaction unit with a production capacity of about 0.75 Mt/y. Cheniere's plans to use large-scale liquefaction trains marked a different approach from the modular expansion that Cheniere commercially sanctioned in June 2022 at its Corpus Christi LNG export terminal in Texas. The Corpus Christi project, which Cheniere said could be followed by a further expansion of the plant, will add about 10 Mt/y of production capacity.

Big liquefaction trains

Large trains were chosen for the Sabine Pass facility because of their economics, Fusco said. Because the location is generally dependent upon coal-fired power from Texas, gas-fired compression units were selected, potentially making the expansion's output more appealing to environmentally conscious off-takers.

Cheniere did not detail any potential deals tied to the recently announced expansion, but the company's deal-making in 2022 extended beyond the Corpus Christi project. Feygin said Cheniere has almost 3 Mt/y that it can convert, at its option, to sale and purchase agreements.

From existing facilities, Cheniere has about 50 TBtu of volumes open for spot, executives said. COO Corey Grindal said Cheniere would need to keep some of those volumes behind for later in 2023 because of possible hurricanes and planned maintenance during the summer. As opportunities and cargoes firm up, Cheniere plans to continue to sell them to the market, Grindal said.

Cheniere on Feb. 23 reported net income of $3.94 billion for the fourth quarter of 2022, compared with a $1.32 billion loss for the prior-year period. Cheniere said the improvement was primarily due to favorable changes in fair value of its derivative portfolio. Cheniere uses derivatives to hedge its exposure to commodity markets in which it has contracts to purchase or sell physical LNG. If prices rise or fall, Cheniere must account for the mark-to-market gain or loss between the derivative and physical positions.

S&P Global Commodity Insights reporter Corey Paul produces content for distribution on Platts Dimensions Pro. S&P Global Commodity Insights is owned by S&P Global Inc.

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