Cheniere Energy of the US has entered a long-term gas supply agreement with Permian producer Apache for feedstock for the phase three expansion at the Corpus Christi liquefied natural gas project in Texas, writes Caroline Evans.

Under the deal, Apache will sell 140,000 million British thermal units per day of natural gas to Corpus Christi Stage 3 for a term of about 15 years.

The supply is expected to produce about 850,000 tpa of LNG, which would be marketed by Cheniere.

Apache will receive an LNG price based on international indices for the feedstock deliveries.

"This first-of-its-kind long-term agreement with Apache represents a commercial evolution in the US LNG industry, as it will ensure the continued reliable delivery of natural gas to Cheniere from one of the premier producers in the Permian basin, while enabling Apache to access global LNG pricing and receive flow assurance for its gas," Cheniere chief executive Jack Fusco said.

"This commercial agreement, which is expected to support the Corpus Christi Stage 3 project, reinforces Cheniere’s track record of creating innovative, collaborative solutions to meet customers’ needs and support Cheniere’s growth."

Apache chief executive John Christmann said the agreement will help the company reach new markets for natural gas produced at the massive Alpine High play in western Texas. Apache has recently been forced to shut-in some of its Alpine High production because of weak local pricing amid limited takeaway capacity.

Analysts said the deal represented a pivotal moment for the US LNG sector.

"Similar arrangements could help push additional projects to (a final investment decision) as long-term contracted offtake agreements represent one of the largest hurdles to project FID," Tudor Pickering Holt said in a note.

"In particular, the supply-push structure is well suited for Cheniere's Corpus Christi Stage 3 mid-scale project, with plans to build up to seven 1.4 million tpa trains with targeted FID in 2020.

However, one potential drawback of greater involvement by supply-only players is it may make the market more susceptible to temporary supply/demand imbalances."

The expansion is expected to receive regulatory approval by the end of the year.

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Cheniere in 'pivotal' supply deal with Apache at Corpus Christi