On an otherwise barren strip of the Louisiana coast, a crew of more than 4,000 workers has spent the past two years building what will be the largest supercooling facility for natural gas in the U.S. When it’s finished late next year, Cheniere Energy’s (LNG) Sabine Pass liquefaction terminal will begin chilling natural gas to -260F so it can be loaded onto tankers and sold to customers in Europe and Asia. It will be the first facility to export natural gas from the contiguous U.S.
The first phase of the Sabine Pass project will cost more than $12 billion and seemed unlikely after Cheniere bet the wrong way on the U.S. natural gas market. In 2008 it spent $2 billion to build an import terminal that quickly became useless when abundant natural gas in the U.S. ended demand for imports, cutting the price from $13 per million BTUs to less than $3 in the U.S.
For the next two years, Cheniere’s stock price hovered just above $1 a share as the Houston-based company flirted with bankruptcy. In 2010, Chairman and Chief Executive Officer Charif Souki bet on the shale boom and proposed the export terminal. Despite the risks, he managed to line up billions in financing; that’s given Cheniere a two-year head start on the half-dozen other LNG export terminals planned along the Gulf Coast. In 2013, Souki was the highest-paid CEO of a U.S. public company ($142 million), and Cheniere is now poised to become one of the most important exporters in the global LNG market. “The impact we’re having on the rest of the world sometimes surprises us,” says Souki. “We’re going to represent 25 percent of the gas sold to Spain. We’re going to feed enough gas to England to heat 1.8 million homes.”
Cheniere says it will be the largest buyer of U.S. natural gas by 2020. Its liquefaction plant in Louisiana and another planned for Texas will allow it to ship about 6 percent of all the gas produced in the U.S. It’s locked buyers into 20-year contracts based on the cost of natural gas within the U.S., which averaged $4.47 per million BTUs for the first nine months of 2014. For a new customer in Asia, a delivery based on September prices would cost about $11.64, after fees. A customer in Europe would pay about $9.64. “This is the first time that there will be LNG on the market that is truly price-sensitive and totally open to the destination that needs it most,” says Souki. “You won’t have a few producers able to decide arbitrarily what they want to charge.”
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