By Oleg Vukmanovic and Edward McAllister
LONDON/NEW YORK (Reuters) - Countries across the world have been quietly signing deals in recent months to import natural gas from the United States, revealing a growing appetite for the fuel overseas as domestic output soars.
Up to a dozen long-term deals, each worth billions of dollars, have been penned behind closed doors with companies in China, Japan, Taiwan, Spain, France and Chile as global demand spikes, according to company, industry and trade sources.
Through the agreements, China in particular has emerged as one of the biggest beneficiaries of cheap American natural gas that in the coming years will be piped to Gulf Coast plants and liquefied for shipment abroad in tankers.
The unannounced deals, which amount to about 2 percent of daily U.S. supply, are not the first of their kind, and they depend on U.S. government approval to construct two new liquefied natural gas (LNG) plants.
But the number of new buyers, and their global scope, show how the United States is taking steps to becoming a major export hub by stealing ahead of rivals in Australia and East Africa, successfully wooing needy Asian buyers even before projects begin construction. Global competition may squeeze profit margins on some exports of U.S. gas.
Companies like Britain's BP (BP.L) and France's GDF Suez (GSZ.PA), already committed to taking LNG from the United States, are now finding multiple buyers willing to take tranches of supply.
"As we see more contracts getting signed, it's an indication that the U.S. has really cheap natural gas that will help supply the global market," said Jason Bordoff, Director at the Center on Global Energy Policy at Columbia University.
The United States is producing record amounts of natural gas thanks to a drilling boom, and more than a dozen export projects have been proposed. But large domestic users of natural gas such as the petrochemical industry are worried that unfettered exports could push prices higher at home. The Obama administration has been approving exports on a case-by-case basis.
So far, only four projects are allowed to export across the globe and only one is under construction.
Cheniere Energy's (LNG.A) Sabine Pass project in Louisiana, expected to begin shipments late in 2015, has sealed deals with importers in Europe and Asia over the past two years.
This latest batch of gas sales will be exported from Sempra Energy's (SRE.N) Cameron LNG plant in Louisiana and the Freeport LNG plant in Texas, sources said. Both plants are expected to begin operations by the end of the decade, pending approvals.
Sempra is still waiting on permits to construct the Cameron plant, and to export the gas to countries with which the U.S. does not have a free trade agreement. Freeport has full export approval, but is yet to begin construction.
Securing buyers early can make or break an LNG project. Without buyers, a project will not receive financial backing or be built.
GDF Suez, which acquired export rights at Cameron last year, has agreed to sell all of its 4 million tonnes per year of capacity to buyers in Japan, Taiwan, China and Chile, according to a review of deals confirmed by industry sources.
Japan's Mitsubishi and Mitsui , also with export rights at Cameron, have separately targeted major buyers such as Spain's Repsol (REP.MC), France's Total (FP.PA) and Japanese utilities. Mitsubishi is to sell a significant chunk of LNG to its own trading arm in Singapore. Sources said Japanese buyers were reluctant to commit to large deals while the fate of its nuclear fleet remained uncertain after the 2011 Fukushima disaster.
Mitsubishi is also in talks with Indian Oil Corp. (IOC.NS) to sell 1 mtpa of LNG for its planned terminal at Ennore in southern India, a company executive said. Exact volumes may be adjusted.
Sempra hopes to make a final investment decision to build the Cameron plant later this year. Once that decision is made, the deals agreed by GDF Suez, Mitsui and Mitsubishi automatically become formal sales agreements, industry sources said. The San Diego-based company expects to win export approval from the U.S. Department of Energy before April.
Meanwhile, BP is in talks to export LNG from the Freeport plant to China National Offshore Oil Corporation (CNOOC), giving the British company a foothold in the world's largest energy consumer. This and older deals with other exporters will soon make China one of the largest importers of U.S. gas.
BP has a further deal to supply Japanese utility Tepco with 0.5 mtpa, sources said.
BP declined to comment. Mitsui and its prospective Japanese utility customers Kansai Electric and Tohoku Electric also declined comment.
For a full list of deals, see table.
More than 12 million tonnes per year (mtpa) of LNG would be exported from the United States under the deals, or around 1.5 billion cubic feet per day of gas, though some volumes may alter in final negotiations, sources said. U.S. daily production is about 70 billion cubic feet.
"These deals will send a signal that there is still strong demand for U.S. LNG volumes," said Andres Rojas, analyst at Waterborne Energy in Houston.
GDF was also in talks with Thailand's PTT but these were abandoned after a failure to agree terms last year, a senior PTT source said. Mitsui also broke off talks with South Korean importer GS Caltex, a source at the company said.
Despite these recent deals, sellers have found it harder than expected to find new buyers, and have had to offer favorable terms when they do.
A projected LNG supply spike between 2016-2020 from North America, Australia, east Africa, Russia and Asia has empowered buyers to push down the price of long-term deals being negotiated now.
This is partly reflected in the low profit margins U.S. exporters stand to make from many of the recently concluded agreements.
"The United States is not the only gas producer, so we are competing in a market with countries like Qatar, Malaysia, Australia and potentially East Africa," Bordoff said. "There is not infinite demand. There is only so much supply that the global market can take."
In its first long-term LNG deal into Asia, GDF Suez is selling 0.8 mtpa to Taiwan's CPC from 2018 at barely breakeven levels. According to the price formula reviewed by sources, CPC will pay around $12 per million British thermal units for the gas in the first year of the contract, a steep discount to the $16 its pays for LNG prices in Asia linked to oil.
Moreover, America's edge over rivals could easily dim should domestic gas prices rise nearer to pre-shale boom levels and crude oil prices simultaneously drop to around $80 a barrel.
At those levels, LNG deals linked to oil begin to look globally competitive, handicapping buyers of American gas.
Bearing these risks in mind, buyers nevertheless want limited exposure to U.S. LNG primarily as a way of negotiating down prices in oil-indexed, long-term contracts with Qatar and Australia.
(Additional reporting by Michel Rose in Paris, Aaron Sheldrick and James Topham in Tokyo, Nidhi Verma in New Delhi, Jane Chung in Seoul, Pisit Changplayngam in Bangkok; Editing by David Gregorio)
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