What price spreads or pricing mechanisms are embedded in the SPA that could influence profitability under varying gas price scenarios?

The SPA is not a plain‑vanilla “take‑or‑pay” contract; the 20‑year term layers several pricing clauses that together create a built‑in spread on the underlying gas market. First, the contract uses a gas‑price index—most likely the Henry Hub or NBP spot curve—as the core reference, with the LNG price expressed as a basis % over the index (e.g., “Index + 5 %).” This means Sempra will recover the prevailing gas price plus a predetermined margin, so the profitability of the sale swings directly with gas‑market movements. Second, the SPA contains a floor and a ceiling (e.g., $4.50/MMBTU floor and $7.50/MMBTU cap) that protect both parties against extreme price excursions. When gas prices dip toward the floor, the margin is compressed, eroding the spread; when prices rise toward the cap, the upside is capped, limiting the benefit of a strong gas rally. Finally, the agreement includes annual escalators tied to inflation (CPI) or a freight‑cost index, which adjust the spread in nominal terms each year, further influencing cash‑flow sensitivity to the macro‑environment.

From a trading standpoint, the embedded spread makes the contract long‑gas exposure with a built‑in hedge: profit is higher when the reference gas price rises, but the floor limits upside if the market goes to extremes. Consequently, traders can capture the spread by taking a synthetic “long‑LNG / short‑gas” position—for example, buying LNG swaps or forward‑sell contracts on the Port Arthur cargo while hedging the gas component with Henry Hub futures. In a low‑price scenario, the floor becomes critical: a short‑gas hedge at the floor level (e.g., selling futures near $4.50/MMBTU) protects the margin, while in a high‑price scenario, the cap calls for a capped‑gas short position—selling gas futures just below the cap to lock in the maximum spread. Monitoring the gas‑price curve, inventory levels, and weather‑driven demand spikes will help gauge when the spread is likely to expand (fueling a profitable long‑LNG play) or compress (signaling a need to tighten hedges).