You are here: Home » PTI Stories » National » News
Business Standard

Saudi Aramco to buy liquid natural gas from US company

Business Finance

AP  |  New York 

Saudi Arabia's state owned oil company will begin buying liquid natural gas from a US company under a 20 year agreement, reflecting the shifting dynamics in the world's energy markets.

Saudi Arabian Oil Co., also known as Aramco, said Wednesday it would buy 5 million tons of liquid natural gas per year from Sempra Energy, based in San Diego. Aramco also will make a 25% equity investment in an LNG export facility under development in Port Arthur, Texas, as part of the deal.

The agreement is a major step forward in Aramco's long-term strategy to become a global LNG player, said Amin Nasser, the company's CEO. "With global demand for LNG expected to grow by around 4% per year ... 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," Nasser said in a release.

The US fracking boom over the last decade led to an abundance of natural gas, and the U.S. quickly became one of the world's top exporters of liquid natural gas after it began exporting the fuel in 2016. Its exports of LNG ranked fourth largest in the world in 2018 behind Qatar, Australia and Malaysia, according to the U.S. Energy Information Administration.

The Port Arthur facility is one of Sempra's five LNG development opportunities in North America, and it received authorization from the Federal Energy Regulatory Commission to construct and operate the facility and related pipelines last month.

"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 Jeff Martin, CEO of Sempra, in a statement. Partnering with Aramco will help develop the facility and enable the export of American natural gas to global markets, Martin said.

The US has been a net exporter of natural gas every month for the past year, fueled by an increase in exports of liquid natural gas. The largest markets for U.S. exports of liquid natural gas in 2018 were South Korea, Mexico and Japan, according to the E.I.A.

The liquid natural gas purchased by Saudi Aramco will most likely be sold on the spot market in Europe and Latin America, said Ira Joseph, head of gas and power analytics at S&P Global Platts.

"This is by far and away the Saudis' largest investment ever in LNG," Joseph said. "The size of the deal, the volume of the LNG, is very out of step with size of LNG contracts that have been signed recently."

Companies such as Sempra have been looking for investors for LNG projects, but finding buyers to sign long-term deals has been difficult. Liquid natural gas is mostly used for power generation, and renewable energy sources have made the market for fuels for power generation more competitive, Joseph said.

Saudi Arabia burns a lot of crude oil in its electric power sector, and the move could help the country diversify its power mix and potentially export crude oil that it might have burned, said Jonathan Aronson, research analyst at Cornerstone Macro.

"If they want to play in the global energy markets, this is a way to get a foothold on the natural gas side, and U.S. natural gas is some of the lowest-cost natural gas in the world," Aronson said.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Thu, May 23 2019. 11:56 IST