EQT Corporation begins testing LNG market

EQT Corporation, the biggest independent U.S. natural gas producer, is dipping its toes in the LNG export market.

EQT has signed a non-binding preliminary agreement with Energy Transfer to sell one million metric tonnes per annum of LNG via the proposed Lake Charles terminal in Louisiana.

The 15-year tolling agreement was signed after EQT spent 18 months evaluating the best way to reach international gas markets.

“This strategy allows us to creatively structure deals with downside price protection, obtain visibility into global downstream markets, and interact with a wide array of potential customers,” said EQT president and CEO Toby Rice during the company’s second quarter conference call.

EQT delivers 1.2 bcf/d, or around 25 per cent of its production, to the Gulf Coast. Around 135 mmcf/d would go to supply the Lake Charles LNG deal.

“We’ve spent the last year and a half studying the nuances of LNG export opportunities and believe the strategy we are pursuing provides the best combination of upside exposure with downside risk mitigation relative to the netback structures that are commonly being signed,” said Rice.

The exact structure of the deal wasn’t revealed but it will give EQT some exposure to international LNG prices rather than selling on a Henry Hub basis, where prices have historically been much lower.

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Getting the deal in place with Lake Charles is the first stage in the process of selling to international buyers. The second stage is to sign a sales and purchase agreement (SPA) with the buyers themselves, where the firm will also seek 15-year deals to match the tolling agreement.

“We plan to pursue signing one or more SPA with prospective international buyers and have additional opportunities to increase our tolling exposure,” said Rice. Talks with buyers are already underway and EQT is seeking a deal with a price floor and ceiling to provide “energy security” to prospective customers, he added.

LNG Facility Investments

The firm initially considered taking an equity investment in an East Coast LNG facility as the best way to gain exposure to international markets, but eventually decided that a tolling agreement was a better option. However, it did not rule out an equity stake in the future.

“We’re not looking to make investments … but there could be opportunities where, from a risk mitigation perspective, it makes sense for us to make a small investment in an LNG facility,” said Rice.

EQT has not set any targets on the proportion of its gas it will sell via LNG but aims to be opportunistic with deals depending on market conditions. In his concluding remarks Rice said the Lake Charles deal represented an “initial step” in EQT’s LNG strategy.

Earlier this year the firm launched a campaign calling for the U.S. to quadruple its LNG export capacity to 55 bcf/d by 2030 to replace overseas coal use. Modelling by the firm showed such a scenario would reduce international CO2 emissions by 1.1 billion metric tonnes per year.

Lake Charles Developments

Energy Transfer signed two other agreements for Lake Charles earlier this month.

• Under the first deal a Japanese consortium would purchase 1.6 million metric tonnes per annum for a 20-year term.
• Under the second deal Chesapeake Energy Corporation would supply one million metric tonnes per annum to Lake Charles for 15 years, which trading house Gunvor would purchase at a price indexed to the Japan Korea Marker (JKM).

Lake Charles has an authorization from the Department of Energy (DoE) to start non-FTA LNG exports by December 2025.

In April this year, the DoE declined a request from Energy Transfer to extend the deadline to start exports to December 2028, and last month declined a rehearing request.

Energy Transfer has not yet made a final investment decision (FID) on the Lake Charles project.