(Bloomberg) — Centrica Plc, the U.K.’s largest household energy supplier, signed a 20-year deal to import natural gas from the U.S., securing supplies as production from British North Sea fields decline.
Centrica will buy 1.75 million metric tons a year of liquefied natural gas from Cheniere Energy Inc.’s Sabine Pass plant in Louisiana, the Windsor, England-based company said today. That’s equivalent to the demand of 1.8 million U.K. homes. The deal can be extended for another 10 years, it said. Prices will be linked to Henry Hub, the U.S. benchmark gas prices, and deliveries will start in September 2018.
The deal shows the U.S.’s emergence as a natural gas exporter after fracking technology created a glut of fuel, sending prices to decade lows. In contrast, U.K. gas prices spiked to a seven-year high last week after a fault on a Belgian pipeline, raising concern that Britain is vulnerable to supply shortages as indigenous production slumps.
“It’s a nice contract to have if the fundamentals that exist today are there in five years time,” Iain Turner, a utilities analyst at Exane BNP Paribas in London, said by phone. “It’s a sensible sort of move.”
Centrica shares gained 1 percent to 361.20 pence in London trading at 9:32 a.m. local time.
In February 2011, Centrica signed a three-year LNG contract with Qatar Liquefied Gas Co. for 2.4 million tons of the fuel annually. QatarGas, as the company is known, is the world’s biggest LNG producer.
“I warmly welcome this commercial agreement between Centrica and Cheniere,” U.K. Prime Minster David Cameron said in the statement. “Future gas supplies from the U.S. will help diversify our energy mix and provide British consumers with a new long-term, secure and affordable source of fuel.”
Sabine Pass is the only project so far to obtain full U.S. approval for an LNG export terminal outside of Alaska. Cheniere has said the proposed gas export facility may start up in 2015, with as many as six units operating there in the future.
The gas for Centrica would come from the fifth unit, or train, on which preliminary engineering work has already begun, the U.K. company said, adding it will buy the LNG on a “free- on-board” basis, meaning it can choose where to send the fuel.
Existing Cheniere customers include BG Group Plc, Korea Gas Corp., Gail India Ltd. and Spain’s Gas Natural SDG SA.
- Brian Swint and Nidaa Bakhsh, Copyright 2013 Bloomberg.