Saudi Aramco, UAE's ADNOC in Talks for Investments in U.S. LNG Projects

(Reuters) — Gulf oil giants Saudi Aramco and Abu Dhabi National Oil Company (ADNOC) are in talks to invest in U.S. liquefied natural gas projects, as they step up competition with oil majors and regional rival Qatar in the booming super-chilled gas market, sources aware of the matter said.

The two energy giants are trying to exploit their fossil fuel resources while they can and with demand for the chilled fuel expected to grow by 50% by 2030, they are tapping opportunities in the United States which has become the world's biggest exporter of LNG as it sends record volumes to Europe.

Saudi Aramco is in talks to invest in phase 2 of Sempra Infrastructure's Port Arthur LNG project in Texas, which represents a proposed expansion to the already producing first phase, the sources said, declining to be identified due to the sensitivity of the matter.

Meanwhile, state-owned ADNOC is in talks with the U.S. LNG firm NextDecade for an offtake from a proposed fourth processing unit at its $18 billion Rio Grande LNG export facility, they added.

Aramco and ADNOC declined to comment when contacted by Reuters. Sempra Infrastructure, a subsidiary of Sempra SRE.N, said it does not comment on commercial matters related to projects under development, while NextDecade said it does not comment on market speculation.

U.S. LNG capacity is set to almost double over the next four years, but several U.S. LNG projects developers have faced financial hurdles to get their proposed export terminals off the ground as investors become more demanding and amid increasing regulatory pressures on banks to focus on environmental, social and governance (ESG).

"The message is: If ESG focused banks won't finance U.S. projects, someone will," Kaushal Ramesh, Rystad Energy's vice president for LNG research said.

Following pressure from climate activists, U.S. President Joe Biden in January paused approvals pending and future applications to export LNG from new projects.

It is not yet clear if the talks with the Gulf oil giants are around equity stakes or sale and purchase agreements (SPA), or both.

One of the sources said Aramco is in talks to purchase some or all volumes from one of the two liquefaction units at Port Arthur's second phase, both capable of producing up to 13.5 million tonnes per annum (mtpa).

Gulf LNG Race

Saudi Aramco is trying to kickstart its global LNG business. ADNOC is already a player in the LNG market. Both compete with neighboring Qatar, one of the world's largest exporters of the seaborne fuel.

QatarEnergy has recently revealed expansion plans that will see it control a global LNG market share of nearly 25% by 2030, analysts say.

"Both Aramco and ADNOC are the oil heavyweights who could have always done more in LNG...It wouldn't be a surprise that they will happily unlock their wallet for the right project," Rystad's Ramesh said.

On Tuesday, sources told Reuters that Aramco has been shortlisted along with Shell and a few other companies to purchase most of the assets of LNG trading firm Pavilion Energy, what could kickstart its LNG business.

"This transaction would underpin the demand side of the equation to build a global LNG portfolio, likely linked to U.S. Gulf Coast supply purchases in the near future," said Felix Booth, head of LNG at energy intelligence firm Vortexa.

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