The tentative agreement comes amid a resumption of U.S. LNG exports to China this year, after Washington and Beijing ended their customs war with the signing of the Phase One trade deal in January. In the first nine months of this year, China imported 1.42 million tonnes of U.S. LNG worth $416 million, after only 258,955 tons in 2019, but still far from the record 2.15 million tons in 2018, according to Chinese customs figures. DHAHRAN, Saudi Arabia and SAN DIEGO, May 22, 2019 /PRNewswire/ — Sempra Energy (NYSE:SRE) and Saudi Aramco announced today that their respective subsidiaries Sempra LNG and Aramco Services Company have signed an agreement (HOA). The HOA assumes that a final 20-year sale and sale contract (SPA) over 20 years of liquid natural gas (SPA) for 5 million tonnes of liquefied natural gas (Mtpa) will be concluded annually from Phase 1 of the port Arthur LNG (LNG) export project under development. It also includes the negotiation and conclusion of a 25% stake in Phase 1 of Port Arthur LNG. The first interim LNG agreement between the United States and China since their bloody trade war, which halted deliveries, could be an early sign that Chinese buyers would take a second look at competitive U.S. shipments. The announcements deserve serious consideration as a sign of real progress, but so far none of the HOAs have been turned into binding acquisition agreements. In addition, in most cases, the project proponent does not identify the buyers included in the agreement. This last point, in particular, suggests that the financial statements are very preliminary.
Amin Nasser, CEO and President of Saudi Aramco, said the agreement was: “A big step forward in Saudi Aramco`s long-term strategy to become a major global LNG player. Given the expected annual LNG demand of around 4%, and by 2035, the 500 million tonnes/y is expected to increase, we see significant opportunities in this market, and we will continue to pursue strategic partnerships that will enable us to meet the growing global demand for LNG. Woodside Energy Trading Singapore Pte Ltd (Woodside) has signed an agreement with Uniper Global Commodities SE (Uniper) to supply LNG to the Woodside portfolio for a 13-year period, which will begin in 2021. The amount of LNG to be delivered will initially reach up to 0.5 million tonnes per year (Mtpa) and will increase to about 1 Mtpa from 2025. Therefore, only a few of the recently announced HOAs are likely to be anything other than a title. However, as the market enters an oversupply phase, almost all parts of the LNG value chain are changing. As a result, PDO negotiations can be crucial educational opportunities for buyers and sellers, as both parties have mutually beneficial agreements at this very uncertain time. The development of Sempra Energy`s LNG export projects depends on obtaining additional customer commitments, complying with necessary trade agreements, guaranteeing all necessary approvals, obtaining financing, incentives and other factors, and obtaining a final investment decision. The final participation of Aramco Services Company and its subsidiaries in the Port Arthur LNG project remains subject to the finalization of final agreements, among others. It will be particularly difficult to turn the new HOAs into binding agreements, given that there are so few buyers interested in entering the current new LNG market. HOAs are effective advertisements, but many developers are happy to recognize that the impending flood makes a 2017 IDF unlikely.
Most are targeting the 2018 IDF at the earliest and only hope to establish themselves as leading candidates for new deliveries needed when the market is balanced in the early 2020s.