Chernier Pricing

[ArtM72]

This is a little old but I didn't recall seeing it before and thought it interesting.  Cherniere is tolling its capacity at $3/mcf plus 15% of Henry Hub pricing.  Add to that inflation and the cost of transport to and from the LNG plant and you have the cost of American LNG.

Another Major Contract for Cheniere's Sabine Pass LNG

A new long-term LNG contract announced yesterday by Cheniere Energy (LNG) shows no departure from what has become almost a standard for U.S. LNG export projects: the contract has a tolling format and is based on a fixed capacity charge (in this case, $3/MMBtu with some escalations for inflation) plus a markup to Henry Hub price on the volumes shipped (15%).

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http://seekingalpha.com/article/1300061-cheniere-energys-lng-project-close-to-being-fully-subscribed?source=feed

[jft310]

IOC shareholder can accept Henry Hub prices plus markup and be rich.

[sydbod]

........  Cherniere is tolling its capacity at $3/mcf plus 15% of Henry Hub pricing.  Add to that inflation and the cost of transport to and from the LNG plant and you have the cost of American LNG.....

Where is the cost of energy to convert NG to LNG? There is huge energy consumption in making LNG.

My understanding is that approximately 4 units of gas would provide the energy and source material to create 3 units of LNG. (the 1 unit of gas for energy  is for power generation to run the show)

[Investor1979]

IOC shareholder can accept Henry Hub prices plus markup and be rich.

LNG's profit margins look thin? Any comments? What should be their costs of gathering and production of 1 mmcf ?

[ArtM72]

IOC shareholder can accept Henry Hub prices plus markup and be rich.

So why is it that gas valuation from E/A seemingly is always pegged to $1/mcf?  Just never made any sense to me.  The Chernier pricing does though pretty well establish the profitable price for building and running their LNG facility at about $3.50/mcf which is pretty much the number normally cast about on this board.

[Palm]

Art, I think it's because that's what RJ has used in it's models as a risk adjust and have said that figure would be raised as things progress.