Bloomberg: Freeport LNG Says It Was Warned Not to Sign Up Chinese Customers

The U.S. Energy Department cautioned Freeport LNG Development LP against signing up Chinese customers for the company’s planned liquefied natural gas export terminal in Texas, Chief Executive Officer Michael Smith said.

“Early on in our project, we were quite frankly warned by the Department of Energy that it would not be looked at as politically correct for us to have a large Chinese customer,” Smith said Thursday at the FT Energy Strategies Summit in New York. “One of the largest Chinese customers wanted a full train,” or processing plant, he said.

In return for signing LNG purchase agreements, Chinese buyers demand equity stakes, which they say are required by their lenders, Smith said. Aside from Cheniere Energy Inc.’s Sabine Pass terminal, which has an investment from a Hong Kong-based company, no U.S. export projects have disclosed Chinese customers, according to ADI Analytics LLC in Houston. That contrasts with Canada, where Chinese investors are key backers of export projects.

A glut of natural gas production from shale reservoirs has spurred dozens of projects to export LNG. The U.S. may become a net exporter of gas by 2017, government data show. In China, the third-largest market for LNG, demand for gas as a cleaner alternative to coal and oil for power generation is rising. MORE