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The Santos (ASX:STO) share price is trading higher today. Here’s why.

Santos Ltd (ASX: STO) shares are lifting today on news the company has signed a 10-year agreement to sell liquefied natural gas (LNG) to Japan’s Mitsubishi Corp.

The Santos share price is currently trading up 2.52% at $6.52 after reaching a morning high of $6.58.

What’s in the deal

Santos says the deal represents the first long-term sale from one of its major LNG projects. It will supply 1.5 million tonnes per annum of LNG to Mitsubishi  from its Barossa project for 10 years, with extension options.

The price will be based on the Platts Japan Korea Marker (JKM), a benchmark price for spot physical cargoes of LNG. The JKM Index is often referenced in spot deals, tenders and contracts both in Northeast Asia and globally. 

Santos said Barossa was a globally-competitive, low-cost brownfield LNG project providing new supply into a tightening LNG market, where JKM-based pricing is an increasingly deep and liquid price marker for both sellers and buyers. 

In the deal, Santos also has options to pursue further LNG transactions through commercial flexibilities negotiated with Mitsubishi. These include collaborating on opportunities relating to Santos’ Moomba carbon capture and storage (CCS) project. In addition, the pursuit of carbon neutral LNG, bilateral agreements for carbon credits, and potential future development of zero emissions hydrogen.

Santos’ investment in the Barossa project

The company currently holds a 62.5% operated interest in the Barossa joint venture, along with South Korean energy company SK E&S which owns 37.5%. Santos is also a joint venture partner and operator in Darwin LNG with a 68.4% interest.

Completion of the planned sell-downs to SK E&S and Japanese power company JERA, announced in early 2020, will see Santos’ interests in Darwin LNG and the Barossa project change to 43.4% and 50%, respectively. The sell-downs are subject to customary consents, regulatory approvals, and final investment decisions.

About the Santos share price

The Santos share price has lost around 20% in 2020. Although the share price has rebounded by 140% from its lows in March, it’s still a long way off from its 52-week high of $9.07.  Santos currently commands a market value of $13.2 billion.

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Motley Fool contributor Eddy Sunarto owns shares of Santos Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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