US, Canadian E&Ps Seek More Exposure to LNG Markets

Copyright © 2023 Energy Intelligence Group Fri, Aug 11, 2023

Author Caroline Evans, Houston Editor Mark Davidson

 More North American E&Ps are exploring ways to gain exposure to international gas prices through LNG exports, with at least one oil-focused player getting in on the action as its production of associated gas continues to soar.

With LNG export capacity set to increase dramatically in 2024-25, Permian Basin producer Pioneer Natural Resources and Canadian gas giant Tourmaline Oil are the latest to disclose their interest in LNG markets as other gas-focused independents are looking to build on agreements already in place.

Diversification

Executives at Pioneer, which produced 370,000 barrels of oil per day in the second quarter with just under 1 billion cubic feet per day of associated gas, told analysts on an earnings call that they are considering getting into the LNG game.

“Just from a diversification standpoint, we are looking at the LNG markets and the new LNG facilities coming on and looking at what the economics are of being able to diversify a portion of our gas to European or Asian markets,” COO Richard Dealy said.

Tourmaline, which bills itself as Canada’s largest gas producer, announced last week that it had joined the Rockies LNG consortium to provide feed gas to the proposed 12 million tons per year (1.5 Bcf/d) Ksi Lisims floating LNG export project in British Columbia. The company also said it would “continue to expand the size and breadth of its LNG business, both short- and long-term.”

Tourmaline already has some exposure to Japan-Korea Marker (JKM) benchmark pricing through a supply deal with Cheniere Energy. But the company has kept an eye on projects in Canada, CEO Michael Rose said.

“We've been watching that for an extended period of time,” he said. “We've seen significant progress made both on the liquefaction piece, and the consortium, and the First Nations' backing for the project. So we thought it was an appropriate time to join. What do we bring? Well, we are the largest gas producer and a low-cost potential supplier, and we're investment grade as well. So yes, we're excited, and we're going to do everything we can to drive that project to fruition.”

Other Rockies LNG members include Ovintiv, Crescent Point and Advantage Energy.

Supplementation

Meanwhile, US independents that have already dipped their toes in the LNG export waters are looking to increase their exposure to the market.

Chesapeake Energy, for example, plans to enter more LNG offtake deals following a spike in interest from buyers after the company announced an initial agreement with trader Gunvor earlier this year. Chesapeake ultimately wants to expose 15%-20% of its production to international pricing via LNG exports.

The heads of agreement (HOA) signed in March called for Chesapeake to supply up to 2 million tons/yr of LNG to the Swiss trader for 15 years, with the volumes indexed to JKM. It has since been revealed that half of the volumes would be liquefied through the Lake Charles LNG project being pursued by Energy Transfer.

However, Singh noted that the HOA with Gunvor is only an initial step to getting to that 15%-20% goal. “You should really see us announcing similar deals in the future,” he said. “There's a lot of conversations going on.” He added that the company is looking for long-term deals with durations of 15 years or more.

Fellow independent Southwestern Energy, which claims to be the biggest supplier of feed gas to US LNG exporters, is continuing to evaluate deals that would help it retain that status.

“We believe there are and will continue to be plenty of internationally priced supply opportunities for us,” CFO Carl Giesler told analysts. “And since we have 2 Bcf/d of production that currently reaches the LNG corridor, we think we'll remain a major supplier to the sector going forward … We're evaluating all of these opportunities to potentially leverage our position into an attractive risk-adjusted global price supply agreement. But I think regardless of how we price our transactions, we believe our scale and direct connectivity to the corridor will allow us to benefit differentially from the growing demand from the next wave of LNG.”