KEY POINTS:

• ‘Extraordinary’ deals set the groundwork for LNG portfolio development
• ‘Robust LNG demand growth’ expected for decades to come
• Commercial business unit provides advantage with its global market presence, expertise
• Port Arthur LNG project well positioned to serve European, Asian markets

By GUS MORGAN

ConocoPhillips continues to advance its liquified natural gas (LNG) strategy by securing offtake and equity positions in various global projects.

ConocoPhillips has added 1.5 million tonnes per annum (MTPA) of LNG regas capacity at the Gate terminal in the Netherlands — as detailed in this Sept. 14, 2023, news release — the latest strategic move to further expand the company’s LNG business.

In August, ConocoPhillips announced it entered into long-term offtake agreements with Mexico Pacific at its Saguaro Energia LNG export facility in Puerto Libertad on the West Coast of Mexico for approximately 2.2 MTPA.

The Mexico Pacific announcement, a deal subject to Mexico Pacific reaching a final investment decision, follows on the heels of a series of 2022 blockbuster deals.

In 2022, ConocoPhillips enhanced its LNG portfolio by signing a joint-venture deal with Sempra for Port Arthur LNG (PALNG), partnering with QatarEnergy for the North Field East and North Field South projects, securing regas capacity in Germany and increasing its equity share in Australia Pacific LNG.

Global LNG & London: Nick Allen takes on new leadership role

To support the company's growing LNG business, Nick Allen has transitioned from his role as General Manager, Global Crude Oil, Natural Gas Liquids & UK Business Development/Commercial Services, into a new role as General Manager, Global LNG & London. “We are on a journey to build a legacy LNG business with a global footprint,” he said. "It is an exciting time and opportunity to lead in this dynamic space, leveraging our commercial knowledge and capabilities.”

Driving ConocoPhillips’ LNG expansion efforts is its Commercial business unit, a global team of marketing, asset management and energy experts that manage the company’s commodity portfolio, a mix of natural gas, crude oil, natural gas liquids (NGLs), LNG, bitumen and power.  Commercial includes various functional units, including Global LNG, a team that creates and optimizes value in the company's LNG portfolio; Gas & Power Marketing, a group that touches every point in the natural gas value chain; and LNG Technology & Licensing, a team that has marketed and licensed the company’s liquefaction Optimized Cascade Process® in 28 trains around the world. The Mexico Pacific LNG export facility in Puerto Libertad is utilizing the Optimized Cascade Process®.

Such marketing capabilities and technical expertise, coupled with strong government relations, have enabled ConocoPhillips to excel in the highly competitive global LNG market, a market it knows well. ConocoPhillips has a 60-year history of leadership in LNG and LNG technology. It even opened the Japan LNG trade with sales from Kenai, Alaska. 

Within this frame of reference, ConocoPhillips’ latest LNG investments are a natural extension of its established LNG business, adding to the company’s deep, durable and diverse asset portfolio, a portfolio shaped by low cost-of-supply investment decisions.

ConocoPhillips Executive Vice President & Chief Financial Officer Bill Bullock said global LNG markets, especially in Asia, are expected to show strong demand for decades to come, driven by energy security needs and the energy transition.

“We see robust LNG demand growth well into the middle of the century,” he said.

LNG is expected to play an increasingly important role in helping meet energy transition pathway demand, as it is lower in greenhouse gas emissions intensity than other alternatives such as coal. As the energy transition takes place in different markets at different speeds, LNG is flexible and can serve markets where it is most needed.  

A balanced LNG supply across 3 regions

As communicated during the 2023 Analyst & Investor Meeting on April 12, ConocoPhillips is producing 6 MTPA of net LNG from Qatar and Australia. By 2028, ConocoPhillips is expected to more than double that amount with its additions in Qatar (North Field East and North Field South) and PALNG, a large-scale LNG facility under development by Sempra Infrastructure in Jefferson County, Texas.

ConocoPhillips’ LNG supply is balanced over three major LNG supply regions, including Qatar, Australia and the United States. 

Port Arthur LNG: ‘A unique and compelling opportunity’

Located on the Texas Gulf Coast, with proximity to prolific gas basins like the Haynesville and Permian, PALNG is set for startup in 2027, a facility well positioned to serve the European and Asian markets.

PALNG will play a key role in growing ConocoPhillips’ global LNG portfolio, leveraging America’s abundant natural gas supply, extensive energy infrastructure and stable government.

“Port Arthur is a unique and compelling opportunity for ConocoPhillips,” Bullock said. 

Tom Mathiasmeier, general manager, Global Gas, Power & Emerging Markets, said PALNG represents a key strategic step for the company, as the Texas-based LNG facility adds a new long-term asset to the company's business portfolio.

“The numerous advantages that ConocoPhillips has as a global company enabled us to put together PALNG,” said Mathiasmeier, whose leadership and guidance have steered the company's LNG expansion strategy and subsequent agreements. “The work around Port Arthur involved many disciplines. Our success could not have been achieved without the dedication and expertise of many employees. Teamwork and collaboration made Port Arthur possible.”  

Equity participation, optionality

ConocoPhillips’ Global LNG business development and origination presence and continuous activities over the past few years in North America enabled the rapid evaluation of the numerous LNG export development options, with PALNG emerging as the most compelling opportunity. 

ConocoPhillips' decision to participate in both equity and offtake was instrumental to launching PALNG. ConocoPhillips acquired a 30% equity interest in PALNG Phase 1 and signed a 20-year agreement for 5 MTPA of LNG offtake. ConocoPhillips' investment in Phase 1 enables it to participate in future expansions and lower-carbon activities at PALNG, along with the potential expansion of Sempra's West Coast of Mexico facilities at Energía Costa Azul. 

“Our agreement with Sempra provides us with a ground-floor opportunity to participate in premier LNG developments,” said Ryan Lance, chairman and chief executive officer, “reinforcing our commitment to helping solve the world’s energy supply needs as we transition to a lower-carbon future.”

ConocoPhillips has a highly competitive liquefaction fee for PALNG, made possible by the significant base-load offtake commitment and the integrated nature of the investment. 

Project team helps build LNG portfolio

A ConocoPhillips project team — consisting of Commercial, Corporate Acquisitions & Divestitures (A&D) and Legal employees — was responsible for implementing the company's LNG expansion based on changes in global energy markets and a growing associated gas position in North America. ConocoPhillips honored this team with a 2023 SPIRIT of Performance Award for building the company's LNG portfolio. 

Getting the suite of agreements around the PALNG deal done under an accelerated timeframe necessitated a cross-functional core team working intensively over a short period. Strong support and engagement from management enabled the project team to move quickly and capture the opportunities in front of them.

LNG Business Development & Origination Manager Vladimir dela Cruz, a Houston-based member of the Global LNG Marketing Team within Commercial, said the PALNG deal with Sempra hinged on the right combination of gas supply capabilities, equity and LNG offtake.

“The value of maintaining long-term relationships in the industry and the successful execution of these three workstreams required a lot of resources and people’s help,” said dela Cruz, who facilitated the LNG offtake part of the deal and pioneered the LNG expansion strategy.

“Our expectations are that PALNG will be a relevant contributor to the company from an earnings perspective, from a cash flow perspective,” he said. “And it will hopefully support the dividend overall.”

Global LNG Marketing and Trading Manager Birger Balteskard said the PALNG deal was critical to executing the company’s LNG expansion plans, enabling ConocoPhillips to diversify its pricing exposure to European and Asian markets where prices far exceed those in the United States. 

Since Russia's invasion of Ukraine, European countries have resolved to cut their reliance on Russian pipeline gas. To help Europe meet its energy supply needs, ConocoPhillips is aiming to deliver up to three times as much natural gas into the European markets compared to what it does today from Norway (pipe gas), the U.S. (LNG) and Qatar (LNG), Balteskard said.

LNG Trading and Origination Director Nigel Hudspith, a London-based member of the Global LNG Marketing Team, described 2022 as an "extraordinary year” for LNG at ConocoPhillips, with the range of deals serving as "cornerstones" for a budding Commercial LNG portfolio.

“We have created positions within the key LNG supply and demand markets around the world,” he said, “and embedded the flexibility within the portfolio to be able to meet our customers’ LNG requirements and respond to the ever-changing market dynamics and volatility that we see persisting."

LNG Portfolio Team 

A ConocoPhillips project team refreshed the company's LNG strategy, ­earning a 2023 SPIRIT of Performance Award. 

Andrew David Hastings (team lead), Tom Mathiasmeier (co-team lead), Craig A. Vaughn, Vladimir R. dela Cruz, Nigel Hudspith, Richard J. Thomas, Fernando A. Avila, Birger Balteskard, Clint Stockman, Carla J. Johnson, Ling Yang, Ben M. Thompson, Daniel R. Paul, Laurie R. Werth, Jakovs Itkins, George B. Vaughan, Khaled Hammoud, Vikrant V. Joshi, Ameet V. Divekar, Filippo Meacci, Jamie Webster, Clare Fisher, Tom Jantunen, Matthew Mackey and Michelle Gu.

Partnering with Sempra

Balteskard and dela Cruz, in Commercial Global LNG, led a 10-person multidisciplined team, which included Commercial, Corporate A&D, Strategy & Portfolio Management (S&PM), Chief Economist's Office, Investment Appraisal, Government Affairs, Marine and Technical Engineering, that evaluated various Gulf Coast LNG projects, high-grading the best-positioned opportunities for the Executive Leadership Team.

This team, which included Corporate A&D Senior Director Richard Thomas, recommended the Sempra opportunity with Port Arthur LNG.

Thomas led the ensuing negotiations with Sempra, serving as the single source of contact for the three workstream negotiations.  

“After deciding on Sempra,” he said, “we went into execution mode, negotiating agreements for all three of the key workstreams.”

Swift functional support for PALNG 

Employees within Legal and Government Affairs, corporate functional groups with ConocoPhillips, also contributed to the success of the PALNG deal, a complex undertaking that unfolded in just a few months.

For instance, Senior Counsel Jamie Webster and other Legal colleagues on the PALNG Project Team simultaneously negotiated numerous agreements within a tight timeframe.

Meanwhile Josh Corless, vice president, International Government Affairs & Political Risk, provided regulatory and political guidance for PALNG, a project replete with domestic and international implications. 

Handling the gas supply for PALNG

ConocoPhillips’ Commercial Gas & Power Marketing organization will manage PALNG's feed gas requirements for a 20-year period beginning upon commercial operation of Train 1.

“As the facility’s natural gas supply manager,” said Gulf Coast Region Manager Craig Vaughn, “we will use our trading, origination and scheduling capabilities to provide the lowest cost and most reliable supply to PALNG.”

Managing the gas supply for PALNG will require real-time communications with PALNG, Vaughn said, and the utmost collaboration with Sempra, the plant operator.

“Our staff is well positioned to provide these services and stands ready to provide ongoing support to PALNG 24/7,” he said, “including weekends and holidays.”

North America Gas Marketing & Trading Manager Clint Stockman said Commercial will strengthen the gas supply for PALNG by ensuring flow assurance, adding incremental value and delivering expertise.

“We have a significant presence in this market,” he said. “Our team works to ensure flow around the clock for our production as well as third-party customers. We have deep experience and a strong reputation across the country, which should provide meaningful benefits to Port Arthur LNG.”

And by placing PALNG's transportation and the gas supply in ConocoPhillips’ hands, Stockman said, Commercial will be able to optimize the portfolio, helping to get the best prices overall and maximizing the value of the assets.

“This creates new value that wouldn’t have otherwise existed,” he said. “And that value is shared between ConocoPhillips and Port Arthur LNG. It’s a real win-win. We know this industry, and we know the participants in it. So, we bring that credibility and expertise to be able to engage those market participants.”