Cheniere Energy, Inc.'s LNG subsidiary, Cheniere Marketing International LLP, entered into a long-term liquefied natural gas ("LNG") sale and purchase agreement ("SPA") with Korea Southern Power Co. Ltd ("KOSPO"). This agreement set the stage for a mutually beneficial partnership that will span over two decades.
Under the terms of the SPA, KOSPO will purchase approximately 0.4 million tons per annum (mtpa) of LNG from Cheniere Marketing. Delivery of the same will commence in 2024 and continue until 2046.
Details of the Agreement
Long-Term Commitment: The long-term nature of the SPA signifies the commitment between Cheniere Marketing and KOSPO. The agreement ensures a steady supply of LNG to meet KOSPO's energy demands. It also reinforces Cheniere's position as a leading LNG provider in the global market.
Over the course of the contract, KOSPO will receive approximately 0.4 million tons of LNG annually, contributing to the stability and security of South Korea's energy infrastructure.
Delivery Terms: Deliveries under the SPA will be conducted on a delivered ex-ship ("DES") basis. This means that Cheniere Marketing will handle the transportation and logistics of the LNG to the specified destination.
The arrangement ensures a seamless supply chain from Cheniere Marketing's facilities to the receiving terminals operated by KOSPO. The DES basis offers operational efficiency and minimizes complexities associated with shipping logistics.
Pricing Structure: The SPA pricing structure is designed to be fair and reflective of market dynamics. Until 2027, the LNG purchase price will be determined based on prevailing market rates.
From 2027 onwards, the purchase price will be linked to the Henry Hub price, a benchmark for natural gas prices in the United States, along with an additional fee. This indexation mechanism ensures that the pricing remains aligned with market conditions, providing transparency and predictability for both parties.
Project Expansion Potential: The SPA between Cheniere Marketing and KOSPO also paves the way for potential future expansion. The volumes associated with the agreement (from 2028 to 2046) depend upon a positive final investment decision concerning the first train of the Sabine Pass Liquefaction Expansion Project ("SPL Expansion Project").
This project aims to develop up to three natural gas liquefaction trains with an anticipated total LNG production capacity of 20 mtpa. Certain subsidiaries of Cheniere have initiated the pre-filing review process for the SPL Expansion Project with the Federal Energy Regulatory Commission.
This potential expansion reflects the strategic growth aspirations of both companies and their shared commitment to meeting the rising global demand for LNG.
Conclusion
The long-term LNG sale and purchase agreement between Cheniere Marketing and KOSPO marks a milestone in the energy industry.
The agreement's delivery terms, fair pricing structure and potential for future expansion demonstrate Cheniere's commitment to meeting energy demands, enhancing energy security and driving economic growth. The collaboration between Cheniere and KOSPO stands as a testament to the transformative capacity of strategic partnerships in shaping the future of the global energy landscape.
Cheniere, a Houston, TX-based energy infrastructure company, primarily engages in LNG-related businesses in the United States.
KOSPO, on the other hand, generates and sells electricity. It operates thermal power stations, wind power and solar power plants.
Zacks Rank and Key Picks
Currently, Cheniere carries a Zacks Rank #3 (Hold).
Some better-ranked stocks for investors interested in the energy sector are Evolution Petroleum EPM, sporting a Zacks Rank #1 (Strong Buy), and Archrock AROC and Ranger Energy Services RNGR, each holding a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here .
Evolution Petroleum: EPM is worth approximately $219.16 million. It currently pays investors $0.48 per share, or 7.38% on an annual basis.
The company currently has a forward P/E ratio of 6.07. In comparison, its industry has an average forward P/E of 7.50, which means EPM is trading at a discount to the group.
Archrock: AROC is valued at around $1.55 billion. It delivered an average earnings surprise of 26.27% for the last four quarters and its current dividend yield is 6.06%.
Archrock is a provider of natural gas contract compression services and aftermarket services of compression equipment.
Ranger Energy Services: RNGR is valued at around $183.61 million. In the past year, its shares have gained 13.8%.
Ranger Energy Services currently has a forward P/E ratio of 5.30. In comparison, its industry has an average forward P/E of 11.60, which means RNGR is trading at a discount to the group.
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