Shale Gas To Be Exported Worldwide In Cheniere-BG Deal

December 2011, Vol. 238 No. 12

U.S. shale gas could be exported for the first time after an $8 billion deal was reached between the BG Group and Cheniere Energy. The gas is likely to be sent to countries in Asia and Europe, including the UK, after it is liquefied. The price of gas in the U.S. is one-fourth of the price in Asia and about half the price in the UK.

“If we start construction by next year, then we could be exporting by 2015,” said Cheniere CEO Charif Souki. “The BG Group contract will help with financing.”

BG already exports to 22 countries including the UK. Under the deal, Cheniere will sell 3.5 million tons annually of LNG to BG for 20 years, at a cost of 115% the U.S. price plus $2.15 per million Btus. Including shipping costs, analysts say this would make U.S. imported gas cheaper than gas in Asia or Europe.

However, Standard & Poor’s indicated that the 20-year contract may not stave off a cash crunch that threatens to trigger a default on debt maturing in May. Cheniere had $162.6 million in cash as of June 30 and a $298 million debt payment due in seven months, according to data compiled by Bloomberg. Cheniere’s stock has lost almost three-fourths of its value since April 2006, when it traded as high as $44.40. The stock was trading around $11.50 per share Nov. 3.

The company won’t default because it will refinance its debt before the May payment is due, Souki said, adding that the BG agreement will help attract lenders to the project. Cheniere has $3.14 billion in outstanding debt, most of it from the Sabine Pass import terminal in southwest Louisiana. The export terminal is expected to cost $7 billion.

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