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Commonwealth LNG has struck purchase commitments with European clients for almost half the annual capacity of its liquefaction plant in Louisiana, Reuters reports, quoting chief executive Paul Varello. The total capacity of the facility is 8.4 million tons of LNG per year.
“We are exchanging documents with counterparties that will represent three to four million tonnes” Varello said in an interview. The executive added, “We have to work hard to get closer to the full 8 million tonnes in heads of agreements to allow us to feel good about getting 6 million tonnes in final agreements.”
The company is promising prices of less than US$2.50 per million British thermal units under long-term contracts of 20 years. Europe is a natural focal point for future LNG supplies from the new liquefaction terminals currently under construction in the United States, but purchase commitments need to be secured in advance so the companies building the facilities get the loans they need to build the projects.
The Louisiana facility has yet to get the final investment decision of Commonwealth, which should happen by the third quarter or the end of 2020, after which construction will begin. Launch of the project is scheduled for 2024.
Long-term contracts have become difficult to secure in LNG because of the abundance of fuel on spot markets and the price sensitivity as more and more liquefaction terminals come on stream in places like Australia and Russia, as well as in Africa. Yet LNG producers need long-term commitments from buyers to get the funds they need to build the facilities.
In the United States, some 10 new LNG plants are being planned or are already under construction as the shale boom has boosted the availability of cheap natural gas to be liquefied and sent to international markets, with a focus on Europe and Asia.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.