NEW YORK (AP) — Saudi Arabia’s state owned oil company will begin buying liquid natural gas from a U.S. company under a 20 year agreement.
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 news release.
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 U.S. has been a net exporter of natural gas every month for the past year, fueled by an increase in exports of liquid natural gas, according to the U.S. Energy Information Administration. 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 for liquid natural gas 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.