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Blackstone Injects $2 Billion Into U.S. Gas Export Plant

Cheniere Energy Partners LP (CQP), operator of the largest U.S. natural gas-import terminal, said Blackstone Group LP (BX) agreed to invest $2 billion toward construction of a $10 billion plant to export the fuel.

The investment by the New York-based private equity firm may help convince creditors to lend the rest of the money needed to begin construction of the facility in southwest Louisiana. Cheniere, which has been seeking to add export capacity to its import terminal since 2010, plans to begin construction by the end of June, Chairman and Chief Executive Officer Charif Souki said in a statement.

A flood of gas from shale and other unconventional North American rock formations produced a surfeit of the furnace and factory fuel that pushed the price to the lowest in a decade. ConocoPhillips, Apache Corp. and Sempra Energy are advancing plans to ship gas in liquid form aboard tankers to overseas markets such as Japan and Spain, where it commands higher prices.

“The U.S. now has some of the cheapest gas in the world,” Leonard Coburn, president of Washington-based Coburn International Energy Consultants LLC, said in a telephone interview. “The gas glut has got people seriously talking about exporting.”

Blackstone agreed to buy 111 million new senior subordinated paid-in-kind units for $18 each, according to the statement. Final terms are contingent on Cheniere securing debt financing for the first two of four planned liquefaction units.

Breakup Fee

Cheniere is required to pay a $50 million breakup fee to Blackstone if the $2 billion investment falls through and Cheniere finds a new equity investor within 12 months, according to a U.S. Securities and Exchange Commission filing by Cheniere today.

Cheniere expects to obtain the remaining financing by March 31, according to the statement. Exports will get under way from the first two liquefaction units in 2016, the company said. Gas can be super-cooled to liquid form for shipment via tankers to markets too remote for pipeline delivery. If built, Cheniere’s export plant would be the first in the continental U.S.

In Japan, where domestic gas production is limited, utilities and chemical makers pay almost six times U.S. prices for the fuel. Liquefied gas from Indonesia sold for $18.21 per million British thermal units in Japan in December, the last month for which figures were available, according to data compiled by Bloomberg. In the U.S., the fuel averaged $3.16 (NGUSHHUB) during that month.

Buying Gas

Souki, 59, said in an October interview that Cheniere will acquire gas for export through its in-house trading desk and an arrangement with JPMorgan Chase & Co. Cheniere prefers to source gas on spot markets rather through long-term agreements with producers that own wells, he said.

Souki has been selling equity and signing sales agreements with European and Asian energy companies to avoid a cash crunch and attract financing for the project.

Last month, Cheniere Energy Inc., 90.6 percent owner of Cheniere Energy Partners, used the proceeds from a December offering to repay the $298 million principal balance on a term loan due in May. The payment cut Cheniere’s outstanding 2012 debt to $204.5 million.

The Cheniere Energy Partners units that Blackstone is buying will pay 4.2 percent interest quarterly in the form of additional units. They will convert to common units, which draw cash payouts, once the first two sections of the plant begin commercial operation.

Gas Pipeline

The partnership will use cash from the sale to buy the 94- mile (151-kilometer) pipeline that connects the terminal to the U.S. gas pipeline network from Cheniere Energy Inc., according to today’s statement.

Cheniere already has customers lined up to buy gas from the Sabine Pass plant, including Korea Gas Corp., BG Group Plc, Gas Natural SDG SA and GAIL India Ltd.

Cheniere Energy Partners climbed 13 percent to close at $23.70 in New York, the biggest gain since Aug. 10. Cheniere Energy Inc. (LNG) rose 12 percent to $15.71.

To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net; Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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