To hear Corey Grindal tell it, Cheniere Inc. created the U.S. LNG export model when it decided to remake its Sabine Pass, La., import facility and designed its Corpus Christi, Texas, plant from scratch. Then it broke the mold.

A competitor wishing to follow the Houston company’s lead will either have to chart its own course or attempt to mimic Cheniere’s business plan.

Either way, it won’t be easy. Sabine Pass is on track to produce first LNG in late 2015, with Train 1 revved up to 100% production by first-quarter 2016.

Cheniere’s model begins with the supply price, which it tied to the Henry Hub price—the New York Mercantile Exchange contract—back in 2011.

“We are fully subscribed at Sabine Pass,” Grindal, Cheniere’s vice president for supply, told attendees at Hart Energy’s recent North American LNG Export conference in Houston. “We are fully subscribed for the first two trains at Corpus Christi and almost done for the third train, and the reason why is because we sell everything at 115% of that month’s settlement price. [The strategy was] very revolutionary in the LNG world in 2011 and 2012 because most of the LNG, if not all of the LNG at that time, was traded on an oil index for the Japan [Customs-Cleared Crude] cocktail, which was made up of a couple of different oil indexes.”

Cheniere also maintains transparency as a component of its strategy, an element that Grindal believes has been instrumental in propelling the company’s LNG projects far ahead of competitors.

“All of our contracts—except for a few specific things in different customer contracts—they are all the same,” he said. “So we don’t have special contracts, we don’t have most-favored-nation clauses in our contracts. They are all homogenous across customers.”

The 1,100 acres that Sabine Pass occupies is useful for more than just hosting storage tanks large enough to serve as a parking space for a Boeing 747 jetliner. It allows Cheniere to store construction material on site as it arrives from foreign locales, then use when ready. Plants lacking such vast space depend on alternative means, such as modules that are manufactured overseas, shipped over and installed wholesale.

The advantage of being a first mover won’t dissipate anytime soon.

“I think that from 2015 to 2018, we will be the only large buyer out there,” Grindal said. “I don’t think the other facilities will come on as fast as they say they will.”

Comments