EQT may invest in US LNG facility as upstream producers tap international markets

The US' biggest upstream natural gas producer, EQT, may take an equity stake in an LNG export project as it seeks to capture the strong margins between relatively cheap domestic feedgas and high spot prices for cargoes delivered to end-user markets.

CEO Toby Rice's comments during an April 28 investor conference call about potentially making a direct investment in liquefaction facilities suggest a broader strategy for EQT than what has been seen over the past two years from other North American drillers.

Apache and EOG Resources, in the US, and Tourmaline, in Canada, have signed agreements that call for some of their gas output to be produced into LNG by Cheniere Energy and sold into international markets, with the upstream producers getting a netback. Rice indicated EQT is interested in similar arrangements, with it expected to sign its first contract by the end of the year, though he also said that is only the initial plan.

"We are currently in discussions with LNG end-users across various geographies and are contemplating equity investment opportunities in LNG export facilities," Rice said. "We are pursuing a portfolio approach from the perspective of liquefication to end markets."

A turnabout in LNG prices in Europe and Asia since record lows in 2020 has spurred renewed interest in US LNG supplies. Offering relatively low fixed fees and destination flexibility for cargoes, US LNG exporters and project developers including Cheniere, Venture Global LNG, NextDecade and Energy Transfer have announced new long-term deals in recent months. The swings in delivered prices also present opportunities in the prompt market for US FOB cargoes.

During the CERAWeek by S&P Global energy conference in Houston in March, Rice met with the president of Sempra Energy's LNG infrastructure unit. Sempra operates the Cameron LNG export terminal in Louisiana and has several expansion projects in development. During the April 28 investor call, Rice did not detail who else EQT was talking to and the contours of any future agreements.

NYMEX Henry Hub June dropped nearly 40 cents to trade around $6.95/MMBtu as of the afternoon in New York April 28. After testing the $6.50-$6.95/MMBtu range, the May contract rallied April 27 and rolled off the board at $7.267/MMBtu. The June contract's plunge took place after the Energy Information Administration reported a 40 Bcf net injection into Lower 48 storage for the week ended April 22, bringing storage levels to 1.49 Tcf. The bulk of the net build came from the South Central region, with 5 Bcf or less in net injections observed in the other four regions.

While US Henry Hub prices are elevated from historical levels, delivered LNG prices in Europe and Asia are around three times higher than at the same time a year ago. Macro fundamentals and geopolitical considerations suggest that those dynamics could persist over the coming months and next few years.

"Our ultimate prize that we're looking for here at EQT is to get exposure to international markets," Rice said. "And we want to make sure we have the flexibility to enter into the contracts that will give us exposure to better realized pricing. One of the ways that we get more flexibility towards accessing those contracts is to take an investment in the LNG facility itself."

Platts DES Northwest Europe for June was assessed at $23.750/MMBtu on April 28. NWE is the delivered price of LNG into Northwest Europe. Platts JKM, the spot-delivered price of LNG into Northeast Asia, was assessed at $22.225/MMBtu. The Platts Gulf Coast Marker for US FOB cargoes loading 30-60 days forward was assessed at $23.200/MMBtu.