Cheniere Making LNG for China

A subsidiary of Cheniere Energy Inc. ( LNG | PowerRating) said Thursday that it is working toward a deal to supply liquefied natural gas from its Sabine Pass terminal in Louisiana to one of China's largest independently owned natural gas companies.

Cheniere Energy Partners LP ( CQP | PowerRating) said it signed a memorandum of understanding with China-based ENN Energy TradingCo. that could lead to ENN's contracting 1.5 million metric tons per year of processing capacity at Cheniere's terminal. That capacity could be used to import or export gas for an initial term 20 years, Cheniere said.

ENN Energy Trading Co. is a subsidiary of ENN Energy Holdings Ltd. (XNGSF, 2688.HK), formerly known as XinAo Gas. The deal will be contingent on Cheniere's securing regulatory approval and moving forward with the construction of a facility to turn natural gas produced in the U.S. into liquid for export. If that occurs, LNG exports could begin in 2015.

Cheniere originally built its Sabine Pass terminal, the largest regasification facility in the world, with the aim of importing LNG to the U.S. But the glut of natural gas that has come from domestic shale formations in recent years has turned the U.S. natural gas market upside down--and seems to make massive importation of LNG unnecessary.

The U.S. Department of Energy granted Cheniere permission in September to begin annually exporting up to 16 million metric tons of liquefied gas, culled from shale formations in Texas, Oklahoma, Arkansas and Oklahoma, through the Sabine Pass terminal. However, the company needs to build the exporting infrastructure first.

No LNG export facilities exist in the lower 48 states, although there is one in Alaska.

"We are excited to participate in supplying natural gas to China and we believe that ENN is a successful model for developing diverse solutions to serve its fast growing energy markets," Cheniere Energy Partners Chief Executive Charif Souki said in a news release.