Deutsche Bank partners Excelerate in LNG off-take deal

In a deal that marks Deutsche Bank Energy Trading's first foray into the liquefied natural gas (LNG) markets, the bank teamed up with Houston-based LNG experts Excelerate Energy to sign a revaporised LNG off-take purchase agreement and asset management arrangement. As part of the deal, which was signed early in 2007, DB Energy Trading agreed to sell Excelerate's revaporised LNG cargoes entering the US via Excelerate's Energy Bridge System at both the Gulf Gateway and the Northeast Gateway deepwater ports.

The LNG, which is bought by Excelerate on the spot market, is vaporised on board its own vessels and then delivered through seabed pipelines into the natural gas grid. The Gulf Gateway is located off the coast of Louisiana and delivers natural gas to the US markets at a baseload rate of 500 million cubic feet per day (mmcf/d) with peak rates of up to 690mmcf/d, while the more recently constructed Northeast Gateway, which is located off the coast of Massachusetts, accommodates 800mmcf/d and a baseload rate over 400mmcf/d.

"We originally had a deal to import gas into the Gulf of Mexico with another company, but once the Northeast Gateway was completed, we needed a counterparty to handle the downstream marketing end of things in the Northeast market," says Jonathan Cook, chief executive officer at Excelerate Energy.

After three years of construction, the Northeast Gateway neared completion in September 2007 and it was at this time that Excelerate began to look around for a potential downstream marketer and received a number of proposals from prospective companies.

"We reached out to Excelerate knowing that the new Northeast deepwater port was coming into commission and started talking about an asset management transaction," says Nicole Jasper, head of sales for the Americas at Deutsche Bank Energy Trading.

Excelerate saw Deutsche Bank as the strongest contender. "We chose Deutsche Bank because of their presence in the natural gas market and their knowledge of the regional markets," says Cook.

The fact that the two companies already had a working relationship in place also helped the deal along, says Jasper. "We've worked with both Excelerate Energy and their 50/50 partner German utility RWE Trading for a number of years and the combination of these two things prompted the deal."

The deal gives the two counterparties opportunity to draw on each other's resources and expertise. "It establishes Deutsche Bank as a player in the LNG markets and although it's our first LNG deal, it's a real coming together of the derivatives and physical business," says Richard Jefferson, head of commodities sales for Europe at Deutsche Bank Energy Trading.

"This is evidence to the marketplace that we're here to deliver a physical molecule and not just provide market liquidity," adds Jasper.

And for Excelerate, Deutsche Bank's backing brings access to the US natural gas market with the benefit of having a double A balance sheet behind them.

"It's important for Excelerate to have a strong and knowledgeable counterparty that can handle both the commercial and operational aspects of marketing and selling the gas into the regional markets," says Cook. "Being in the spot LNG trading business we have cargoes that come in on an intermittent basis. We need someone who can fully understand the markets on a regional basis to ensure we get the best pricing for the cargoes."

From start to finish, the deal took approximately four months and involved roughly 15 Deutsche Bank employees and around five Excelerate staff.

The biggest challenge to the progress of the deal has been the global economic drivers. So far, only one cargo has been imported through the Northeast Gateway. "Though there's only been one cargo, it allowed us to physically commission the new pipeline built to carry natural gas from the LNG vessel to the Algonquin Hub line," says Jasper. "Based on world economics, most cargoes have been diverted over to Asia," she adds.

However, Cook is confident the US will see an increase in LNG supply. "The global market is shifting and more LNG is going to be headed to the US over the next few years."