Saudi Arabia wants to buy tons of American natural gas
CNN Business
May 22, 2019
Saudi Arabia wants to
buy tons of American natural gas
Saudi Arabia has
placed a huge bet on American natural gas.
In a sign of shifting
energy fortunes, Saudi Aramco announced a mega preliminary agreement on
Wednesday to buy 5 million tons of liquefied natural gas per year from a Port
Arthur, Texas export project that's under development.
If completed, the
purchase from San Diego-based Sempra Energy (SRE) would be one of the largest
LNG deals ever signed, according to consulting firm Wood Mackenzie.
"This is a major
statement about the Saudis entering the LNG market and about how price
competitive the outlook is for US gas," said Ira Joseph, head of gas and
power at S&P Global Platts.
Although the
agreement calls for Saudi Arabia to purchase LNG from the United States, Joseph
said it's unlikely the fuel would end up being used to meet the kingdom's vast
electricity needs. More likely, Aramco will try to sign up buyers in South
America and Europe for the LNG.
"We expect Saudi
Aramco will use this volume to establish a global portfolio as it seeks to
become a global gas player," Giles Farrer, Wood Mackenzie's research
director, wrote in a report.
Saudi investment
offsets trade war headaches
Aramco is the world's
largest oil company and owns America's largest refinery, which is also located
in Port Arthur. But Aramco is just beginning to build its LNG footprint.
"We see
significant opportunities in this market and we will continue to pursue
strategic partnerships which enable us to meet rising global demand for
LNG," Amin Nasser, Aramco's CEO, said in a statement.
The shale revolution
has made the United States the world's largest producer of natural gas, a title
it's held since 2009 after surpassing Russia.
There's so much
natural gas that much of it is being turned into LNG, a super-cooled form of
the fuel that it can be transported by ship overseas. China and other
developing nations have turned to LNG as a cleaner alternative to coal.
The support from
deep-pocketed Saudi Arabia could offset trade war headwinds facing America's US
LNG industry.
But US-China and
US-Saudi relations are tense.
China imposed a 10%
tariff on US LNG in September. Earlier this month, China retaliated against new
US tariffs by raising the duties on LNG to 25%. US oil, on the other hand, has
been spared China's tariff wrath -- for now at least.
The Saudi Arabian
government has been accused of ordering the death of journalist Jamal
Khashoggi, and its conflict with Yemen has been condemned by the US Congress.
Sempra other companies doing business with Saudi Arabia faces a risk of
criticism.
Sempra did not
respond to a request for comment about concerns over its partnership with Saudi
Arabia.
State oil companies
hedge their portfolios
Foreign oil companies
are helping to accelerate America's transformation into an LNG powerhouse.
ExxonMobil (XOM) has
partnered with Qatar's state oil company on Golden Pass LNG, an export project
located in Sabine Pass, Texas. The $10 billion project, scheduled for
completion in 2024, is expected to have the ability to eventually export about
16 million tons of LNG a year.
The deals are further
evidence of OPEC nations trying to hedge their bets due in part to rising
concerns about climate change.
"As the energy
transition intensifies," Farrer said, oil-focused national oil companies
are "diversifying their exposure away from oil and into gas and LNG."
Farrer said Aramco
has also been rumored to be interested in LNG deals in Australia, Arctic Russia
and other major markets.
For Sempra, the
Aramco deal is likely to increase confidence around the Port Arthur project,
which is one of five LNG developments the company is working on in North
America.
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