Apache Corp. said it will be harder to sign long-term contracts to sell liquefied natural gas based on oil prices after Cheniere Energy Inc. agreed to sell LNG based on U.S. gas pricing.
Cheniere’s deal in January to sell LNG to Korea Gas Corp. as early as 2017 based on pricing at the benchmark Henry Hub in Erath, Louisiana, changed the marketplace, David Calvert, an Apache vice president and manager of the Kitimat venture, said at an energy conference in Calgary. He said Cheniere can export LNG for less because its Sabine Pass plant in Louisiana is part of an existing import terminal rather than new construction.
Apache needs contracts based on oil prices to justify the cost of the new Kitimat LNG export plant in British Columbia, Calvert said. The plant is a joint venture of Apache, EOG Resources Inc. and Encana Corp.
“The expectation around that after Cheniere did a deal on Henry Hub has created some, I’ll call them unrealistic expectations,” Calvert said. The agreement made buyers in Asia reluctant to sign contracts based on the higher oil-linked prices, he said.
North American natural gas prices have plunged amid a glut caused by rising shale output, increasing the interest in exports to Asia. Japan paid $17.58 per million British thermal units to import gas from the U.S. in July, according to LNG Japan Corp. Natural gas for November delivery settled at $3.531 per million Btu today on the New York Mercantile Exchange.
Apache envisions shipping Canadian gas from Spectra Energy Corp.’s British Columbia pipeline system to a liquefaction terminal at Kitimat that could compress and export 5 million metric tons a year by 2016.
Apache owns a 40 percent stake in the project, and EOG Resources and Encana each own 30 percent. It’s the first Canadian gas project to get an export license from the Canadian government.
Calvert said Apache would consider selling as much as a 20 percent partnership stake in the Kitimat project to a customer in Asia who signed a long-term purchase contract. He said Apache has received expressions of interest from several potential customers whom he wouldn’t name.
Royal Dutch Shell Plc is also planning a competing $12 billion LNG export project, also from Kitimat. Shell has announced three buyers in Asia as partners: Korea Gas, PetroChina Co., and Mitsubishi Corp.