Sempra, Aramco Sign Landmark LNG Deal

Agreement Reached for Port Arthur First Phase

U.S. holding company Sempra Energy has signed a heads of agreement with state-owned oil firm Saudi Aramco for the export of liquefied natural gas from Saudi Arabia.

The landmark deal marks a major shift in Saudi Arabia’s natural gas development and is expected to drive new development and breakbulk demand around the Port Arthur LNG export project, which is under construction.

“The agreement with Sempra LNG is a major step forward in Saudi Aramco’s long-term strategy to become a leading global LNG player. With global demand for LNG expected to grow by about 4 percent per year, and likely to exceed 500 million tonnes a year by 2035, we see significant opportunities in this market and we will continue to pursue strategic partnerships which enable us to meet rising global demand for LNG,” said Amin Nasser, Saudi Aramco’s CEO and president.

20 year Term

The agreement is expected to lead to a 20-year sale-and-purchase agreement (SPA) for 5 million tonnes per annum of LNG offtake from the Phase 1 of the Port Arthur project.

The terms also cover the negotiation and finalization of a 25 percent equity investment in the first phase of the project. The entire first phas is expected to include two liquefaction trains, three LNG storage tanks and associated facilities with capacity to export roughly 11 million tons per annum of LNG on a long-term basis.
“At Sempra Energy, we are developing one of the largest LNG export infrastructure portfolios in North America, with an eye towards connecting millions of consumers to cleaner, more reliable energy sources,” said Jeffrey W. Martin, CEO of Sempra Energy.

Global Portfolio

While Sempra is based in San Diego, California, it is unlikely the LNG offtake will be shipped to the U.S. once the first phase is complete, given the robust nature of the U.S. shale industry.

“It's unclear what the final destination of Saudi Aramco's LNG will be. There continues to be a long-term expectation that, in time, Saudi Arabia will import LNG to be used for power generation. However, we expect that Saudi Aramco will use this volume to establish a global portfolio as it seeks to become a global gas player,” said Giles Farrer, director at research agency Wood Mackenzie.

As one of the largest companies in the world by revenue, and possibly the most profitable company in the world, Saudi Aramco has benefited greatly from primary access to the second-largest proven crude oil reserves. In recent years however it has also been instrumental in drivng the government’s Vision 2030 policy which aims to diversify revenues away from oil towards other energy sources.
“"This is a signal of Aramco's intent to become a global gas player and develop a broad LNG portfolio. As the energy transition intensifies, we are seeing oil focussed NOCs following major international oil companies by diversifying their exposure away from oil and into gas and LNG,” Farrer added.