US producer Chesapeake signs LNG deal with Gunvor tied to Delfin project

US shale producer Chesapeake signed a long-term LNG export deal for 0.5 million mt/year of supply from the Delfin LNG project offshore Louisiana that will be delivered free on board to global energy trader Gunvor, the companies said Feb. 13.

The back-to-back deal involving multiple sale and purchase agreements will see the shale producer buy the volumes from Delfin at a Henry Hub price, with a contracted start date in 2028. The volumes would then be delivered to Gunvor on an FOB basis with a sale price linked to the Platts JKM benchmark price reflecting spot LNG delivered to North Asia.

The agreement for Chesapeake is part of the producer's efforts to pursue greater exposure to international LNG pricing by securing US LNG capacity. But that effort also faces increased regulatory uncertainty after the Biden administration's recent LNG export permit policy shakeup.

The volumes reflected in the Feb. 13 deal are part of an agreement Chesapeake struck with Gunvor in March 2023 for up to 2 million mt/year, which marked a novel approach because the preliminary deal did not specify a US terminal where the LNG would be produced.

Chesapeake and Gunvor committed 1 million mt/year to Energy Transfer's Lake Charles LNG project in Louisiana under a nonbinding deal announced in July 2023. That leaves 0.5 million mt/year supply under Chesapeake's and Gunvor's heads of agreement that the companies have not publicly assigned to an export project.

Regulatory uncertainty

The Delfin and Lake Charles projects face significant regulatory uncertainty. The White House Jan. 26 announced a "pause" on permits issued by the US Department of Energy authorizing projects to export LNG to countries that lack free-trade agreements with the US, representing most of the global LNG import market.

The Delfin and Lake Charles projects, which are awaiting final investment decisions, have existing non-FTA licenses that are set to expire before the projects could come online.

Delfin's non-FTA license contains a June deadline. The company has been targeting an FID on the first of four floating LNG vessels, each with a nameplate capacity of about 3.3 million mt/year.

Lake Charles' permit contains a December 2025 deadline that it has told the DOE it will be unable to meet. Energy Transfer in August 2023 submitted a new application for a non-FTA license that is now subject to the DOE suspension on new permits.

DOE officials clarified over the past week the agency will still consider applications for extensions(opens in a new tab) of non-FTA permits during the suspension, which will last until the agency can update how it considers impacts of LNG exports on climate change, the US economy and national security.

But the review process for extensions is also uncertain. The DOE will consider extension applications under a policy it rolled out in April 2023 -- the same day the agency denied an extension for the Lake Charles project. The new policy requires an applicant for an extension to demonstrate it had "physically commenced construction" and faced "extenuating circumstances outside of its control" in failing to meet the agency's deadline for beginning exports.

The agency has yet to grant any extension under its new policy.

Chesapeake and Delfin did not immediately respond to requests for comment Feb. 13.

Delfin CEO Dudley Poston in a statement said the latest deal "provides Chesapeake with commercial flexibility with a reduced environmental footprint, while providing a much-needed source of additional supply."

Gunvor co-head of LNG trading Kalpesh Patel said the agreement was an important step in finalizing its deal with Chesapeake "while expanding our existing cooperation with Delfin." Gunvor signed an SPA with Delfin in November 2023 for 0.5 million mt/year to 1 million mt/year for a minimum 15 years.

Chesapeake CEO Nick Dell'Osso said in the statement the Feb. 13 deal "provides diversification and access to global LNG pricing while enabling the delivery of affordable, reliable, lower carbon energy to markets in need," while showing the "the depth of our portfolio and strength of our financial position."

Chesapeake's LNG push

Beyond the Delfin deals, Chesapeake in October 2023 signed a preliminary agreement(opens in a new tab) with global commodities trader Vitol for up to 1 million mt/year of LNG from yet-to-be determined US liquefaction facilities.

Chesapeake's push for greater exposure to global LNG pricing was a key component of its multibillion-dollar tie-up(opens in a new tab) with rival producer Southwestern announced in January. The deal, targeted to close in the second quarter, stands to create the country's top natural gas producer.

Chesapeake has described the merger as making the producer a more attractive counterparty in long-term LNG deals because the combined entity will be investment grade at close.

Chesapeake wants to shift from being essentially 100% dependent on Henry Hub pricing to having 15% to 20% of its production priced internationally as it moves more natural gas out of the US, Justin Brady, director of Chesapeake's LNG and commercial marketing teams, said at a conference in January.

"We should move from zero to probably 10-12 million mt/year by the end of the decade," Brady said.