French oil and natural gas major Total is close to signing a firm long-term sales agreement with Cheniere Energy to lift 3.5 million tonnes per annum (mtpa) of LNG from its Sabine Pass liquefaction project, according to sources close to the deal.
The structure of the deal is understood to be virtually identical to Cheniere’s 20-year sales and purchase agreement signed with BG Group last week, the first firm offtake deal signed by the project. Under that agreement BG will pay the US developer a fixed take-or-pay fee of $2.25/MMBtu to cover the procurement, liquefaction and loading costs at the Sabine Pass plus an interruptible 115% of US Henry Hub natural gas futures fetching fee paid to Cheniere to provide free on board (FOB) cargoes.
Total is also understood to be taking the commercial export agreement one step further by assuming an ownership stake in Cheniere’s Sabine Pass Liquefaction company. Specific terms of the equity stake were undisclosed.
Bringing an equity partner into the project has been seen as crucial for Cheniere if it is to secure its financial future and reduce its $3.14bn debt, which includes $2.2bn specifically related Sabine Pass.
While credit rating agency Standard & Poors (S&P) called Cheniere’s deal with BG a “significant milestone” in its efforts to generate future cash flows, it has reaffirmed its CCC+ junk-status rating with a negative outlook.
“Assuming its current liquidity does not materially improve, Cheniere will not be able to make its 2012 maturity payments,” S&P said in a report released on Monday.
“The company must generate significantly more liquidity to avoid further credit deterioration or default. We believe its options include further asset sales and terminal use agreements (TUAs), incremental LNG marketing activity, equity offerings, and debt restructuring.”
Closing in on sales threshold
A firm 3.5mtpa sales commitment from Total would bring Cheniere to the 7mtpa threshold, a figure that chief executive Charif Souki told ICIS Heren last week was the target for moving forward with the first phase of the liquefaction project.
Phase One at Sabine Pass is planned for two liquefaction trains of 4.5mtpa capacity each, with Cheniere indicating that it will retain and market the remaining 2mtpa.
Cheniere and Total both declined to comment when contacted to confirm the deal.
Total is already an import capacity holder at Sabine Pass where it has 1 billion cubic feet/day – 0.2 million cubic metres/day – of regasification capacity as part of 20-year terminal utilization agreement.
The agreement with Cheniere follows Total’s declaration last week that the company has been studying the possibility of exporting US gas but provided no additional details.