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With its domestic natural gas reserves nearly depleted, the U.K. is turning to a U.S. company to supply enough liquefied natural gas (LNG) to provide energy to nearly 2 million British homes for 20 years.
The $15.1 billion-plus deal between Houston-based Cheniere Energy Inc. (NYSE: LNG) and Centrica, a British energy firm, marks the first time Britain has ever imported natural gas from the U.S.
The deal has big implications for companies involved in the flourishing U.S. shale gas industry, in which gas is extracted through hydraulic fracturing, or fracking.
You see, fracking has led to an abundance of natural gas and will go a long way toward making the U.S. a net exporter of energy instead of a net importer in the coming years.
That, of course, will be a big boon to natural gas companies that export LNG.
Under the U.K. deal, Centrica - which serves 11 million households - will import 1.75 million metric tons of LNG annually from Cheniere's Sabine Pass facility in Louisiana. That's enough to supply power to 1.8 million - or 8% - of U.K. homes. The first deliveries are expected to begin in 2018 and the 20-year deal can be extended for an additional 10 years.
Along with the base $15.1 billion cost, Centrica will pay Cheniere a 15% premium on U.S. natural gas prices for each shipment, plus a set fee of $3 per million British thermal units of gas.
Even though gas deliveries won't start for five years, the deal couldn't come soon enough for the U.K. The country's gas reserves have been depleted as unseasonably cold weather increased natural gas demand. The U.K. just got a bitter taste of gas shortages during the coldest March in 50 years.
But the energy woes are long-term. Some predict blackouts within three years in Britain and analysts warn the gas shortfall could add more than $300 to the average family bill next winter.
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