Americas Energy CEO Series: Cheniere’s Fusco feels ‘urgency’ to grow US LNG export business

Americas Energy CEO Series: Cheniere’s Fusco feels ‘urgency’ to grow US LNG export business

Americas Energy CEO Series: Cheniere’s Fusco feels ‘urgency’ to grow US LNG export business

Cheniere Energy is ahead of schedule and expects to begin producing LNG by the end of the year from the first liquefaction unit at its Corpus Christi export terminal in Texas and from a fifth unit at its Sabine Pass facility in Louisiana, CEO Jack Fusco said Tuesday in an interview with S&P Global Platts.

“We’re very optimistic that we’ll be producing LNG on those trains this year and first cargo will be shortly thereafter,” Fusco said during a wide-ranging discussion at the company’s headquarters in Houston.
Fusco also described efforts to commercialize a sixth train at Sabine Pass as a top priority.

The most recent quarterly report from Cheniere targeted “substantial completion” of Corpus Christi train 1 and Sabine Pass train 5 for the first half of 2019. The company had suggested in February that Corpus Christi could start up sooner, though Fusco’s latest comments are the strongest to date that the schedule has been moved up. Cheniere has said building Sabine Pass train 6 would depend on its ability to find enough offtakers.

The construction and commercial updates reflect Cheniere’s efforts to move quickly to grow its business and solidify its market position as competition increases with new US terminals coming online over the next six to 12 months along the Gulf and Atlantic coasts. A second wave of developers also is working to sign long-term contracts to finance their facilities.

Besides the market, Cheniere and other exporters also have to deal with uncertainties created by escalating trade tensions between the US and China.

In the years ahead, China is expected to overtake Japan as the world’s biggest importer of LNG, and as such unfettered access to that market will be critical to US exporters.

“I really try not to bother myself with what’s going on geopolitically, but I do feel some urgency to grow the business,” Fusco said.

US weighted netbacks have averaged $4.57/MMBtu this month to date, $3.83/MMBtu stronger than last year, primarily due to strong East Asian demand, which has supported spot LNG prices. S&P Global Platts Analytics expects that US weighted average netbacks will likely trend above $5/MMBtu through the end of the year, which should continue to support strong utilizations of US LNG export capacity.

Total US LNG feedgas demand has averaged just under 3.3 Bcf/d, month-to-date, up 2% from June and up nearly 49% from last year. Platts Analytics expects that US LNG feedgas demand will rise to nearly 4.3 Bcf/d by the end of the year, supported by incremental commissioning demand at Corpus Christi, Sabine Pass and at Kinder Morgan’s Elba Island export terminal in Georgia, which is currently expected to start up in the fourth quarter.

Since becoming the first exporter of LNG produced from shale gas in February 2016, Cheniere has shipped 413 cargoes from Sabine Pass as of Tuesday, S&P Global trade flow software cFlow shows. Fifteen of those cargoes remained on the water en route to final destinations. It is building two trains at Corpus Christi and recently made a final investment decision to build a third there.

Tariff concerns also in the mix amid growth plans
Cheniere, which is scheduled to release financial results for the April-June quarter on August 9, also is advancing plans to build mid-scale liquefaction units at Corpus Christi as part of an expansion. The move is in addition to the three large LNG trains planned for there. Midscale units are smaller and are seen as a way of reducing per-train construction costs and making it easier to find offtakers to buy the capacity.

Asked whether Cheniere might be interested in a merger or acquisition, Fusco didn’t dismiss the idea.

“You can look back at my history and know that I tend to be an inquisitive person, both on the buy side and the sell side,” he said. “But it has to make financial sense for all of the shareholders.”

With all the growth plans, Cheniere is hoping that the politics in Washington and overseas don’t get in the way.

Among other things, its Midcontinent Supply Header Interstate Pipeline project, which would boost takeaway capacity from Oklahoma’s Anadarko Basin to support growing Gulf Coast demand for LNG exports, is awaiting word on whether it will be granted exemptions from the Trump administration’s move to impose a 25% tariff on imports of steel.

“We feel we have been boxed into a corner,” Fusco said.

Because of the quality of the pipe it needed and when it needed the pipe, the company procured steel for Midship from a Canadian supplier, Fusco said. Without the tariff exemption, Cheniere still expects to build the pipeline, but the costs would go up meaningfully.

“We’ll have to either eat it or pass it on,” the CEO said.

Manjula

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