A preliminary agreement between the Ksi Lisims liquefied natural gas project and a German state-owned gas utility, signed Wednesday, marks a first for the British Columbia development but is unlikely to be the last with a European customer.
European customers would probably not take direct delivery of the LNG. Instead, they would use it to trade with Asian importers that have contracts with suppliers closer to Europe. This increasingly common arrangement highlights how interested countries are in securing stable supplies.
“What has opened up, what has changed for us, is maybe not the agreement itself, but the conditions that we’re operating in,” said Rebecca Scott, spokesperson for Ksi Lisims.
These conditions—starting with the war in Ukraine that cut off natural gas supplies to Europe and continuing with the U.S.-Israeli conflict with Iran that has shut off LNG from the Middle East—have “created this environment of a new emphasis on the need for energy security,” Scott added.
Ksi Lisims and the utility Securing Energy For Europe (SEFE) signed an agreement to negotiate terms for sales of up to one million tonnes per year of LNG from a yet-to-be-built terminal over a 20-year term, starting in the early 2030s.
The crucial aspect for SEFE was the free-on-board arrangement, which gives the utility “the flexibility to deliver cargoes to any destination, thus enhancing the resilience and diversification of our portfolio,” said SEFE CEO Egbert Laege.
Energy analyst Alex Munton of Rapidan Energy Group explained that free-on-board status allows SEFE to trade or swap contracts for LNG with Asian importers closer to Ksi Lisims, while taking supplies nearer to Europe. “You give me yours, and I’ll give you mine,” Munton said, simplifying the concept.
SEFE can sell as much volume and for whatever duration it needs to meet its requirements. LNG projects require long-term sales contracts to secure financing for multi-billion-dollar facilities, but swaps are not uncommon. For instance, Indian utility GAIL Gas has used swaps to trade LNG from U.S. suppliers on the opposite side of the planet.
Munton added that the SEFE deal raises the profile of B.C. projects among other large European utility purchasers, which may be interested in similar arrangements. “It clearly demonstrates the sort of breadth of potential interest,” he said. “It’s not just an Asian project.”
