LNG

JERA Co. Inc., Japan’s biggest liquefied natural gas importer and utility company, has approved a deal to sell part of its stake in the Freeport LNG export plant in Texas to another Japanese company.

JERA Co. Inc., the largest Japanese LNG buyer and power assets holder, has stated it would not be renewing long-term supply contracts for volumes from projects at Ras Laffan in Qatar amounting to 5.5 million tonnes per annum.

The contracts with Qatar are expiring at the end of the year. The deals were originally signed in 1997 and 1998 for the Qatargas 1 project.

JERA had inherited most of its worldwide contracts from Tokyo Electric Power Co. and Chubu Electric when the JERA joint venture was set up.

“Currently we are not considering contracting because we find it extremely difficult to extend the existing large contracts timing-wise,” JERA President Satoshi Onoda said of the Qatari long-term deals during a virtual conference.

The JERA President emphasized that the Tokyo-based company did not have a plan to give up all of its long-term LNG supply contracts.

Long-term portfolio

These sale and purchases agreements span liquefaction plants in Australia such as Wheatstone LNG, Darwin LNG, the FLNG Prelude plant as well as projects in Indonesia, Malaysia, Brunei and Papua New Guinea.

The Japanese company also receives cargoes from the Freeport export plant in Texas and could focus on more US volumes, as well as in the short-term spot LNG when needed.

In mid-November 2021, JERA s purchased a significant stake in Freeport LNG at Quintana Island in Texas and will invest in expansions as part of a plan to be able to direct cargoes to Japan even when global supplies are tight.

The Japanese company’s US subsidiary JERA Americas Inc., concluded a securities purchase agreement with infrastructure fund Global Infrastructure Partners to acquire around a 25.7 percent interest in Freeport for $2.5 billion.

For this transaction, JERA appointed US investment bank Goldman Sachs as its exclusive financial advisor.

The Freeport plant is located in Brazoria County, south of Houston, and is run by Chief Executive Michael Smith, an energy entrepreneur who developed the plant with almost 15 million tonnes per annum of LNG capacity.

It has use-or-pay liquefaction tolling agreements for most of the output from the three Trains with customers including JERA as well as Japanese utility Osaka Gas and European-based companies, UK major BP and German utility Uniper.

JERA noted that, together with Freeport LNG, the Japanese company has already contributed to the stable operation of Train 1 of the Freeport liquefaction project through its participation in that subsidiary.

JERA plans to work with Freeport to advance new LNG projects including production capacity expansion and the development of Train 4.

Freeport LNG returned a liquefaction Train to service after a brief spell of maintenance, increasing feed-gas demand at the Quintana Island plant in Texas and guaranteeing cargoes for Asian and European buyers..

The ramp-up of the Train at the three-Train Freeport facility came as spot LNG prices for North Asia jumped to $18.46 per million British thermal units for October from $17.240 per MMBtu last week.

US Gulf Coast LNG last day futures prices also soared on the week with the October US GCL free-on-board (FOB) cargo quoted at $16.900 per MMBtu versus the previous week's $15.199 per MMBtu.

With the Freeport Train back on stream, data showed that feed-gas deliveries to the Texas plant increased to just over 2 billion cubic feet per day.

Analysts note that high demand for US LNG from nations like China, Japan and South Korea as well as Brazil in South America has meant very high utilization rates at all six US liquefaction terminals.

The Freeport operating company, whose Chief Executive is the energy entrepreneur Michael Smith, produces around 15 million tonnes per annum of LNG, the equivalent of 130 million barrels of oil.

The Freeport business is now estimated to be on track to book well over $2.5 billion in revenue in 2021 because of higher prices, including the US benchmark Henry Hub over $4 per million British thermal units.

It has use-or-pay liquefaction tolling agreements for most of the output from the three Trains with customers including European and Japanese contract holders, BP of the UK, Germany’s Uniper and Japan’s Jera Co. Inc. and Osaka Gas.

The Freeport plant, which is the only plant in the US that uses exclusively electric motors instead of natural gas turbines to drive the liquefaction compressors, also has permits to develop a fourth processing Train.

The first three Trains were built by a consortium including McDermott International and Zachry Construction Corp. of the US, along with Chiyoda Corp. of Japan.

Freeport only began commercial operations in May 2020 for its third Train with liquefaction services for French major TotalEnergies and South Korean utility and energy company SK E&S under their tolling agreements.

The original Freeport facility was completed as an import terminal in 2008 with one berth and two storage tanks, each of 160,000 cubic metres capacity.

A second loading berth and 165,000 cubic metres capacity of storage were added.

The Freeport LNG export plant on Quintana Island in Texas has asked regulators to place its third liquefaction Train into service by April 30 as the US Gulf Coast export buildout continues amid the global supply glut and economic slump.

Freeport LNG Chief Executive Michael Smith said he was hopeful of signing sufficient deals with buyers as the Quintana Island facility in Texas slowly expands, though suggested the second wave of plants may face difficulties 

However, Smith stated in an interview with pricing agency S&P Global Platts that the market had completely changed in 2019.

The Freeport project comprises four Train in all and the plant shipped its first cargo from the second liquefaction Train in mid-December 2019.

The cited a list of challenges, including record low prices and weaker than expected demand in Asia, oversupply concerns and the recent coronavirus outbreak in China.

He said this had created a perfect storm of headwinds for producers looking to construct new liquefaction plants or additional processing Trains.

“I don't think there's going to be a lot,” Smith said of additional sanctioned US capacity. 

“The margins for everyone have come down,” he stated.

More than a dozen US developers are pursuing projects for new plants or additional production capacity and have yet to announce positive final investment decisions.

The first phase construction at Freeport will see the building of one more Train, bringing to total to three and 15 million tonnes per annum of output.

The original Freeport terminal was completed in 2008 as an import facility with one berth and two storage tanks, each of 160,000 cubic metres capacity.

A second loading berth and a 165,000 cubic metres capacity full containment LNG storage tank have been added. The Train 4 project will be the second phase of construction.

“We don't have anything signed up. Until we do have something signed, no one is going to hear from us,” said Smith about the Train 4 project at his Texas plant.

Freeport's current target is for a final investment decision on Train 4 by mid-2020 and a start-up scheduled for 2024.

“We believe once we have the requisite capacity sold to reach our financing hurdles, we can close a transaction within a six-week time period, eight on the outside,” explained the CEO.

Smith declined in the interview with S&P Global to specify what range of prices Freeport was discussing with prospective buyers, though he said it was similar to the deals announced by other developers.

“We don't believe we are wasting our time,” said Smith. However, he stated that circumstances had changed since the first wave buildout of the six US plants currently operating. 

The delayed Freeport LNG export project at Quintana Island in Texas is moving forward on its expansion plans by selecting a preferred bidder for the fourth processing Train, even as it has still to complete its first Train and to start the plant.

The US Department of Energy said it had issued a short-term order to the Freeport LNG export project being developed at Quintana Island in Texas to export up to 2.14 billion cubic feet per day of natural gas as LNG over a two-year period to both free-trade and non-free trade agreement countries.

Freeport LNG, the project at Quintana Island in Texas led by US energy entrepreneur Michael Smith, has signed a preparatory accord for a future tolling services agreement with Japanese trading house Sumitomo Corp.

Freeport LNG, the US export plant being constructed on Quintana Island in Texas, was granted a permit by the Department of Energy to export an additional 5 million tonnes per annum from a fourth liquefaction Train.