Talks between Louisiana Natural Gas Exports Inc. and Ukraine’s Naftogaz have stalled over a pricing formula for a long-term contract, German publisher DW reports.
At issue: The state-held Naftogaz doesn’t agree with LNGE’s proposal to link the price of the LNG under a 20-year contract to the U.S. natural gas benchmark Henry Hub, without any reference to much weaker European gas prices.
In March, Ukraine and LNGE signed a letter of intent, and at the time, LNGE CEO Ben Blanchet hinted that a draft long-term agreement had already been decided, with deliveries beginning at the earliest in 2023. In May, the Ukrainian government preliminarily approved the text of a memorandum on the prospects for importing LNG from the U.S., with the supply of 5.5 billion cubic meters of natural gas annually over 20 years.
Also of concern, according to DW, is the lack of infrastructure—specifically spare regasification capacity in Poland—with all existing and planned online capacities booked by state-owned energy firm PGNiG. The existing gas interconnector between Poland and Ukraine—Drozdowicze—has capacity of only 2 billion cubic meters per year, and flows only to Ukraine.
LNGE has reportedly offered to invest $300 million to finance construction of a new gas interconnector between Poland and Ukraine and is also mulling financing the expansion of Polish regasification capacities.
Meanwhile, LNGE is also courting business in Turkey. In June, Blanchet sent a letter to the Turkey-U.S. Business Council, or TAIK, expressing its “strong interest” in a partnership. The documents are on file with the U.S. Department of Justice National Security Division’s Foreign Agents Registration Act unit.
The letter to Mehmet Ali Yalcindag calls for a 12- to 15-year agreement, starting with an initial phase of 2 to 3 years of spot market sales, to be followed by a 10- to 12-year agreement based on a “transparent, commercially competitive pricing structure from LNG facilities in the U.S.” The letter also notes strong support for the project is expected from International Development Finance Corporation and the Export-Import Bank of the United States on the U.S. side “upon the direction of the White House.”
Blanchet further notes the company is “open to a discussion about investing and
participating in the infrastructure enhancements a strategic LNG contract will provide.”
Both Ukraine and Turkey are seeking to diversify their oil and gas supplies away from Russia.