Saudis Tap Into U.S. Shale Gas Boom With Sempra LNG Stake
The Saudi Aramco-Sempra deal, if completed, would be the first long-term LNG purchase by Saudi Arabia’s state oil giant.
(Bloomberg) -- Saudi Aramco agreed to a buy a 25% stake in Sempra Energy’s Texas liquefied natural gas terminal, giving the world’s biggest oil exporter a foothold in the fast-growing market for global LNG trade.
The proposed deal, which includes a 20-year agreement to buy 5 million tons of gas annually from the plant, would mark Aramco’s first entry into production outside Saudi Arabia. The company can potentially ship the LNG home to the kingdom’s power plants or trade it globally. The state-owned firm and San Diego-based Sempra declined to disclose the value of the potential deal.
Saudi Arabia is tapping into the U.S. shale revolution, joining a wave of LNG exporters that are shipping the fuel to buyers in Europe, Latin America and Asia. Sempra’s Port Arthur plant, due to begin operations in 2023, is among more than a dozen projects in development as companies seek ways to ship surplus U.S. supplies to tap a fast-expanding international market for the heating and power-plant fuel. Sempra itself is working on five projects.
If the agreement goes forward, it would be one of the biggest LNG deals ever signed, according to Giles Farrer, a Wood Mackenzie Ltd. Analyst. “This is a signal of Aramco’s intent to become a global gas player and develop a broad LNG portfolio,” Farrer said in a note.
Sempra shares rose as much as 2.1% to $134.29 Wednesday. The stock, which had its best quarter since 2002, is trading near an all-time high.
Sempra has been selling assets following pressure from billionaire activist investor Paul Singer’s Elliott Management Corp., including non-utility renewable energy and gas-storage assets in the U.S. Elliott declined to comment on the Aramco deal.
Saudi Arabian Oil Co., as Aramco is officially known, sees annual demand for LNG rising about 4% a year and reaching 500 million metric tons a year by 2035. Global demand for LNG, which is gas that is super-chilled until it turns to liquid and can be transported by tankers, was 324 million tons last year according to BloombergNEF.
The gas it will buy from Sempra will be produced from Phase 1 of the company’s Port Arthur project. The companies also agreed to negotiate Aramco’s purchase of a 25% stake in that phase.
“This is a safe, cheap supply of gas in a stable, regulated market,” said David Hodson, managing director of Dubai-based energy consultant Blue Pearl Management. “There is so much gas coming out of the U.S. market with substantial opportunities for export that I can see Aramco doing at least one more deal there.”
Sempra starts U.S. LNG output as projects set to boost exports
The agreement “is a major step forward in Saudi Aramco’s long term strategy to become a leading global LNG player,” Chief Executive Officer Amin Nasser said in a statement. “We will continue to pursue strategic partnerships which enable us to meet rising global demand for LNG.”
In a region richly endowed with hydrocarbons, Aramco has struggled to build its gas business fast enough to keep pace with surging domestic demand. Past joint ventures with companies like Royal Dutch Shell Plc, Eni SpA and Lukoil PJSC found gas in the kingdom’s vast Rub al Khali desert, known as the Empty Quarter, but it was too expensive to develop.
In addition to trading the fuel, Aramco could potentially import some LNG into Saudi Arabia to help meet specific areas of demand, according to Adam Sieminski, president of Riyadh-based research institute King Abdullah Petroleum Studies and Research Center, or KAPSARC.
“LNG imports into western Saudi Arabia could make sense,” Sieminski, who formerly headed the U.S. Energy Information Administration, said in a telephone interview last week.
Importing LNG could displace Saudi crude currently used in power plants and help free barrels for export, KAPSARC said in a March report. The Saudis have refineries and chemical plants on the country’s western Red Sea coast while most of its production is in the east.
Pushing into gas adds to the rivalry between Saudi Arabia and its regional foes Iran and Qatar. Iran holds reserves second only to Russia’s, but sanctions and lack of investment stymied its export plans. Qatar is the world’s biggest LNG exporter and is a partner with Exxon Mobil Corp. in a $10 billion plant in Texas, and has plans to pour a total of $20 billion into U.S. oil and gas fields.
--With assistance from Javier Blas, Verity Ratcliffe, Naureen S. Malik, Jim Efstathiou Jr. and Scott Deveau.
To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net
To contact the editors responsible for this story: Nayla Razzouk at nrazzouk2@bloomberg.net, Joe Ryan, Pratish Narayanan
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