Aramco Edges Toward Investment in U.S. LNG
Saudi Arabia is nearing a deal to invest in U.S. liquefied natural gas, a landmark decision for the kingdom, which in the past had been a huge supplier of energy to America. Saudi Arabian Oil Co., known as Aramco, has narrowed its focus to a shortlist of at least four U.S. LNG projects and intends to announce a deal in the first half of this year, people familiar with the matter said. Companies with projects being considered include Tellurian Inc., TELL +3.59% a LNG developer based in Houston known for its intention to ship gas from its planned Driftwood terminal in Louisiana, the people said. In addition, San Diego-based Sempra Energy ,SRE +1.05% which is developing five LNG projects between the U.S. and Mexico, has had discussions with Aramco concerning its Port Arthur project in Texas, the people said. Aramco is considering equity stakes in the projects, the people added. It wasn’t clear what the value of the potential investments were. Aramco didn’t immediately respond to requests for comment. A representative for Tellurian said the company doesn’t comment on commercial dealings. A representative for Sempra Energy said, “We’ve had strong interest in Port Arthur LNG from global LNG buyers and investors but can’t comment on any commercial discussions.” Any such investment would mark a sea change in the energy flows between the U.S. and Saudi Arabia. America’s shale revolution has broken years of dependence on Middle Eastern oil, to the extent that the International Energy Agency expects the U.S. to become a net energy exporter by 2023. For Saudi Arabia, the interest in U.S. LNG is twofold, said Jason Feer, head of business intelligence at New York-based consulting firm Poten & Partners. “One reason is the geopolitical aspect of how to keep the U.S. close and maintain the strategic relationship, and secondly they see LNG as diversifying, investing in a fuel that would have perhaps more of a lifespan than a straight crude oil play.” Energy majors including Royal Dutch Shell PLC, Total SA and BP PLC have already pivoted toward cleaner-burning natural gas, in a shift from their traditional oil businesses. Aramco doesn’t produce any oil and gas abroad, and while Saudi Arabia’s own gas reserves are some of the largest in the world, they are hard to extract and high in sulfur, making them cost more to process. Nearly all of the kingdom’s electricity is powered by oil or natural gas, but there are plans to diversify that into more natural gas and renewables, in part to allow more crude to be exported. A study published last year by Saudi Arabia’s government-funded think tank, King Abdullah Petroleum Studies and Research Center, found that shifting from oil to natural gas power generation had a positive impact on the economy, even if the gas was imported. Saudi Arabia said in October that it is considering investing in a stake in Russian energy giant PAO Novatek’s Arctic LNG 2 project, although no deal has been formalized. Aramco intends to make LNG investments in both the U.S. and Russia, the people familiar with the matter said. “By also investing in Russia they’re giving themselves options, trying to demonstrate that the Kingdom is trying to hedge against over-dependence on the U.S.,” said Mr. Feer.