Aramco and Sempra announce Heads of Agreement for equity and offtake from Port Arthur LNG Phase 2

Rhea-AI Summary

On June 26, 2024, Aramco and Sempra announced a non-binding Heads of Agreement (HoA) for a 20-year sale and purchase agreement (SPA) for 5.0 million tonnes per annum (Mtpa) of liquefied natural gas (LNG) from the Port Arthur LNG Phase 2 expansion project. Aramco is also set to take a 25% equity stake in this phase. The agreement aims to fulfill the growing global demand for lower-carbon energy. The Port Arthur LNG project, located in Southeast Texas, is part of Sempra's larger Port Arthur Energy Hub and is positioned to enhance global energy security. The Phase 2 expansion is expected to bolster the facility's capacity up to 13 Mtpa, with the potential to further grow into one of the world's largest LNG export facilities.

This strategic move highlights Aramco's intent to diversify into the LNG sector and Sempra's commitment to expanding U.S. natural gas distribution globally. The project stands to play a important role in improving energy security while offering a lower-carbon alternative to coal for electricity production.

Positive

• Aramco's entry into the LNG sector aligns with its strategy to become a leading global LNG player.
• The 20-year SPA for 5.0 Mtpa of LNG provides long-term revenue potential.
• Aramco's 25% equity participation signifies a strong commitment to the project's success.
• Port Arthur LNG's Phase 2 expansion boosts facility capacity to 13 Mtpa.
• Potential to expand to eight trains, positioning it as a significant global LNG export facility.
• Enhancement of global energy security through increased LNG distribution.

Negative

• The agreement is non-binding and subject to numerous conditions, which may pose execution risks.

Insights

Financial Analyst

The announcement of a 20-year Sale and Purchase Agreement (SPA) for 5.0 million tonnes per annum (Mtpa) of LNG between Aramco and Sempra presents substantial long-term revenue potential for both companies. This strategic move into the LNG sector aligns with global trends towards lower-carbon energy sources.

For Aramco, this partnership diversifies its energy portfolio, which traditionally has been heavily dependent on crude oil. Diversification can mitigate risks associated with oil price volatility, providing a more stable revenue stream. The 25% equity stake in the Port Arthur LNG Phase 2 indicates Aramco's commitment to establishing a significant foothold in the LNG market. However, investors should be cautious of the non-binding nature of the Heads of Agreement and the conditional aspects of the deal, which might introduce uncertainties.

For Sempra, this agreement not only solidifies its role in the global LNG market but also enhances the strategic value of its Port Arthur LNG facility. The potential expansion to a total of eight trains would elevate the site as one of the world's major LNG export hubs. This expansion is poised to improve Sempra’s revenue diversification and growth prospects. However, the project's execution risks and the required capital investments should be closely monitored by investors.

Energy Market Analyst

This agreement is pivotal in the context of the global energy transition. With the growing emphasis on lower-carbon sources of energy, LNG presents a viable alternative to coal, especially in electricity generation. Aramco's participation in the Port Arthur LNG Phase 2 project is a strategic pivot towards gas, which burns cleaner than coal and oil.

This move can be seen as a long-term strategy to align with global environmental policies and regulations aimed at reducing carbon emissions. The expansion of the Port Arthur facility will enhance the global LNG supply, potentially stabilizing LNG prices in the long run. The geographical location of the Port Arthur facility, with access to the Gulf of Mexico, offers logistical advantages for global distribution. However, the industry's cyclical nature and potential oversupply in the LNG market could impact profitability. The environmental footprint of LNG production and transportation, though lower than coal, still poses regulatory and reputational risks that both companies need to manage adeptly.

DHAHRAN, Saudi Arabia, June 26, 2024 /PRNewswire/ -- Aramco, one of the world's leading integrated energy and chemicals companies, and Sempra (NYSE: SRE) (BMV: SRE), one of North America's leading energy infrastructure companies, today announce that their respective subsidiaries have executed a non-binding Heads of Agreement (HoA) for a 20-year sale and purchase agreement (SPA) for liquefied natural gas (LNG) offtake of 5.0 million tonnes per annum (Mtpa) from the Port Arthur LNG Phase 2 expansion project. The HoA further contemplates Aramco's 25% participation in the project-level equity of Phase 2.

The parties expect to execute a binding LNG SPA and definitive equity agreements with terms substantially equivalent to those in the HoA, with the SPA and equity agreements subject to a number of conditions.

Nasir K. Al-Naimi, Aramco Upstream President, said: "We are excited to take this next step into the LNG sector. As a potential strategic partner in the Port Arthur LNG Phase 2 project, Aramco is well placed to grow its gas portfolio with the aim of meeting the world's growing need for lower-carbon sources of energy. This agreement is a major step in Aramco's strategy to become a leading global LNG player."

Jeffrey W. Martin, Sempra Chairman and CEO, said: "The planned expansion of Port Arthur LNG would help facilitate the broad distribution of U.S. natural gas across global energy markets. By expanding the global reach of the Port Arthur LNG facility, we have the opportunity to improve energy security, while providing a lower-carbon alternative to coal for electricity production."

Port Arthur LNG is a natural gas liquefaction and export terminal in Southeast Texas with direct access to the Gulf of Mexico. The Port Arthur LNG Phase 1 project is currently under construction and consists of trains 1 and 2, as well as two LNG storage tanks and associated facilities. The Port Arthur LNG Phase 2 project is a competitively positioned expansion of the site to include the addition of up to two trains capable of producing up to 13 Mtpa.

At the heart of Sempra Infrastructure's flagship Port Arthur Energy Hub, Port Arthur LNG has potential to expand to a total of eight trains, which would position it as one of the world's most significant LNG export facilities. The facility is expected to play an important role in enhancing global energy security and resilience. Moreover, Sempra Infrastructure is actively advancing infrastructure projects within the Port Arthur Energy Hub, addressing both the rising demand for lower-carbon fuels and carbon intensity reduction. This includes the proposed Titan Carbon Sequestration project. 

About Aramco

As one of the world's leading integrated energy and chemicals companies, our global team is dedicated to creating impact in all that we do, from providing crucial oil supplies to developing new energy technologies. We focus on making our resources more dependable, more sustainable and more useful, helping to promote growth and productivity around the world. www.aramco.com

About Sempra

Sempra is a leading North American energy infrastructure company focused on delivering energy to nearly 40 million consumers. As owner of one of the largest energy networks on the continent, Sempra is electrifying and improving the energy resilience of some of the world's most significant economic markets, including California, Texas, Mexico and global energy markets. The company is recognized as a leader in sustainable business practices and for its high-performance culture focused on safety and operational excellence, as demonstrated by Sempra's inclusion in the Dow Jones Sustainability Index North America and in The Wall Street Journal's Best Managed Companies. More information about Sempra is available at sempra.com and on social media @Sempra. 

Aramco Forward-Looking Information

The press release contains forward-looking statements. All statements other than statements relating to historical or current facts included in the press release are forward-looking statements. Forward-looking statements give the Company's current expectations and projections relating to its capital expenditures and investments, major projects, upstream and downstream performance, including relative to peers. These statements may include, without limitation, any statements preceded by, followed by or including words such as "target," "believe," "expect," "aim," "intend," "may," "anticipate," "estimate," "plan," "project," "can have," "likely," "should," "could," and other words and terms of similar meaning or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company's control that could cause the Company's actual results, performance or achievements to be materially different from the expected results, performance, or achievements expressed or implied by such forward-looking statements, including the following factors: global supply, demand and price fluctuations of oil, gas and petrochemicals; global economic conditions; competition in the industries in which Saudi Aramco operates; climate change concerns, weather conditions and related impacts on the global demand for hydrocarbons and hydrocarbon-based products; risks related to Saudi Aramco's ability to successfully meet its ESG targets, including its failure to fully meet its GHG emissions reduction targets by 2050; conditions affecting the transportation of products; operational risk and hazards common in the oil and gas, refining and petrochemicals industries; the cyclical nature of the oil and gas, refining and petrochemicals industries; political and social instability and unrest and actual or potential armed conflicts in the MENA region and other areas; natural disasters and public health pandemics or epidemics; the management of Saudi Aramco's growth; the management of the Company's subsidiaries, joint operations, joint ventures, associates and entities in which it holds a minority interest; Saudi Aramco's exposure to inflation, interest rate risk and foreign exchange risk; risks related to operating in a regulated industry and changes to oil, gas, environmental or other regulations that impact the industries in which Saudi Aramco operates; legal proceedings, international trade matters, and other disputes or agreements; and other risks and uncertainties that could cause actual results to differ from the forward-looking statements in this press release, as set forth in the Company's latest periodic reports filed with the Saudi Stock Exchange. For additional information on the potential risks and uncertainties that could cause actual results to differ from the results predicted please see the Company's latest periodic reports filed with the Saudi Stock Exchange. Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which it will operate in the future. The information contained in the press release, including but not limited to forward-looking statements, applies only as of the date of this press release and is not intended to give any assurances as to future results. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to the press release, including any financial data or forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law or regulation. No person should construe the press release as financial, tax or investment advice. Undue reliance should not be placed on the forward-looking statements. 

Sempra Forward-Looking Information

This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on assumptions with respect to the future, involve risks and uncertainties, and are not guarantees. Future results may differ materially from those expressed or implied in any forward-looking statement. These forward-looking statements represent our estimates and assumptions only as of the date of this press release. We assume no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise.

In this press release, forward-looking statements can be identified by words such as "believe," "expect," "intend," "anticipate," "contemplate," "plan," "estimate," "project," "forecast," "envision," "should," "could," "would," "will," "confident," "may," "can," "potential," "possible," "proposed," "in process," "construct," "develop," "opportunity," "preliminary," "initiative," "target," "outlook," "optimistic," "poised," "maintain," "continue," "progress," "advance," "goal," "aim," "commit," or similar expressions, or when we discuss our guidance, priorities, strategy, goals, vision, mission, opportunities, projections, intentions or expectations. 

Factors, among others, that could cause actual results and events to differ materially from those expressed or implied in any forward-looking statement include: California wildfires, including potential liability for damages regardless of fault and any inability to recover all or a substantial portion of costs from insurance, the wildfire fund established by California Assembly Bill 1054, rates from customers or a combination thereof; decisions, investigations, inquiries, regulations, denials or revocations of permits, consents, approvals or other authorizations, renewals of franchises, and other actions, including the failure to honor contracts and commitments, by the (i) California Public Utilities Commission (CPUC), Comisión Reguladora de Energía, U.S. Department of Energy, U.S. Federal Energy Regulatory Commission, Public Utility Commission of Texas, U.S. Internal Revenue Service and other regulatory bodies and (ii) U.S., Mexico and states, counties, cities and other jurisdictions therein and in other countries where we do business; the success of business development efforts, construction projects, acquisitions, divestitures, and other significant transactions, including risks related to (i) being able to make a final investment decision, (ii) completing construction projects or other transactions on schedule and budget, (iii) realizing anticipated benefits from any of these efforts if completed, (iv) obtaining third-party consents and approvals, and (v) third parties honoring their contracts and commitments; macroeconomic trends or other factors that could change our capital expenditure plans and their potential impact on rate base or other growth; litigation, arbitrations, property disputes and other proceedings, and changes to laws and regulations, including those related to tax and trade policy and the energy industry in Mexico; cybersecurity threats, including by state and state-sponsored actors, of ransomware or other attacks on our systems or the systems of third parties with which we conduct business, including the energy grid or other energy infrastructure; the availability, uses, sufficiency, and cost of capital resources and our ability to borrow money or otherwise raise capital on favorable terms and meet our obligations, including due to (i) actions by credit rating agencies to downgrade our credit ratings or place those ratings on negative outlook, (ii) instability in the capital markets, or (iii) rising interest rates and inflation; the impact on affordability of San Diego Gas & Electric Company's (SDG&E) and Southern California Gas Company's (SoCalGas) customer rates and their cost of capital and on SDG&E's, SoCalGas' and Sempra Infrastructure's ability to pass through higher costs to customers due to (i) volatility in inflation, interest rates and commodity prices, (ii) with respect to SDG&E's and SoCalGas' businesses, the cost of meeting the demand for lower carbon and reliable energy in California, and (iii) with respect to Sempra Infrastructure's business, volatility in foreign currency exchange rates; the impact of climate and sustainability policies, laws, rules, regulations, disclosures and trends, including actions to reduce or eliminate reliance on natural gas, increased uncertainty in the political or regulatory environment for California natural gas distribution companies, the risk of nonrecovery for stranded assets, and uncertainty related to relevant emerging and early-stage technologies; weather, natural disasters, pandemics, accidents, equipment failures, explosions, terrorism, information system outages or other events, such as work stoppages, that disrupt our operations, damage our facilities or systems, cause the release of harmful materials or fires or subject us to liability for damages, fines and penalties, some of which may not be recoverable through regulatory mechanisms or insurance or may impact our ability to obtain satisfactory levels of affordable insurance; the availability of electric power, natural gas and natural gas storage capacity, including disruptions caused by failures in the transmission grid, pipeline system or limitations on the withdrawal of natural gas from storage facilities; Oncor Electric Delivery Company LLC's (Oncor) ability to reduce or eliminate its quarterly dividends due to regulatory and governance requirements and commitments, including by actions of Oncor's independent directors or a minority member director; and other uncertainties, some of which are difficult to predict and beyond our control. 

These risks and uncertainties are further discussed in the reports that Sempra has filed with the U.S. Securities and Exchange Commission (SEC). These reports are available through the EDGAR system free-of-charge on the SEC's website, www.sec.gov, and on Sempra's website, www.sempra.com. Investors should not rely unduly on any forward-looking statements. 

Sempra Infrastructure, Sempra Infrastructure Partners, Sempra Texas, Sempra Texas Utilities, Oncor and Infraestructura Energética Nova, S.A.P.I. de C.V. (IEnova) are not the same companies as the California utilities, SDG&E or SoCalGas, and Sempra Infrastructure, Sempra Infrastructure Partners, Sempra Texas, Sempra Texas Utilities, Oncor and IEnova are not regulated by the CPUC. 

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SOURCE Sempra

FAQ

What is the purpose of the agreement between Aramco and Sempra announced on June 26, 2024?

The agreement is a non-binding Heads of Agreement for a 20-year sale and purchase of 5.0 Mtpa of LNG from Port Arthur LNG Phase 2, with Aramco taking a 25% equity stake.

How much LNG will Aramco purchase annually from the Port Arthur LNG Phase 2 project?

Aramco will purchase 5.0 million tonnes per annum (Mtpa) of LNG under the 20-year agreement.

What is the significance of the Port Arthur LNG Phase 2 expansion?

The Phase 2 expansion will increase the facility's LNG production capacity to up to 13 Mtpa, enhancing global energy security and resilience.

How much equity will Aramco hold in the Port Arthur LNG Phase 2 project?

Aramco will hold a 25% equity stake in the Port Arthur LNG Phase 2 project.

What are the potential benefits of the Port Arthur LNG Phase 2 expansion for Sempra?

The expansion will help distribute U.S. natural gas globally and provide a lower-carbon alternative to coal for electricity production, enhancing energy security.

What are the risks associated with the non-binding Heads of Agreement between Aramco and Sempra?

The non-binding nature of the agreement means it is subject to numerous conditions, which may pose execution risks.