EXHIBIT 10.7

LNG LEASE AGREEMENT

This LNG LEASE AGREEMENT (the “Agreement”) is entered into this 24th day of
June, 2008 (“Effective Date”) by Cheniere Marketing, Inc., a Delaware
corporation with its principle offices located at 700 Milam Street, Suite 500,
Houston, Texas (“LESSOR”), and Sabine Pass LNG, L.P., a Delaware partnership
with its principle offices located at 700 Milam Street, Suite 800, Houston,
Texas (“LESSEE”). LESSOR or LESSEE may be referred to herein individually as a
“Party”, and together as the “Parties”.

WHEREAS, LESSOR is engaged in the business of procuring cargoes of liquefied
natural gas (“LNG”) from multiple international suppliers for delivery to LNG
regasification terminals;

WHEREAS, LESSEE owns and operates that certain LNG regasification terminal
located on the Sabine Neches Waterway in Cameron Parish, Louisiana (the
“Terminal”);

WHEREAS, the Parties have entered into that certain Amended and Restated LNG
Terminal Use Agreement, dated November 9, 2006, as amended (the “TUA.”) pursuant
to which LESSEE provides certain terminal services (“Services”) to LESSOR,
permitting LESSOR to deliver LNG to the Terminal and to receive regasified LNG
for redelivery as natural gas;

WHEREAS, LESSEE from time to time desires to lease LNG for certain purposes
required for the testing, commissioning, and efficient operation of the
Terminal, and LESSOR desires to lease such LNG to LESSEE.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, LESSOR and LESSEE agree as follows:

 

1. Lease of LNG. Pursuant to the terms of this Agreement, LESSEE may request,
and LESSOR shall provide, LNG for use at the Terminal for the purposes set forth
in Paragraph 2 (“Lease LNG”). Requests for Lease LNG shall be made to LESSOR
pursuant to Paragraph 3 of this Agreement. Payment for the use of Lease LNG
shall be made pursuant to Paragraph 14 of this Agreement.

 

2. Permitted Uses of Lease LNG. LESSEE shall be permitted to use Lease LNG for
the purposes of Terminal piping, tank, and equipment cool down and
commissioning, performance testing of process equipment and ancillary support
systems, and long-term thermal stabilization of the Terminal. LESSEE shall be
permitted to cause Lease LNG to be regasified in its process equipment, and to
allow it to be regasified naturally as a result of the cooldown and thermal
stabilization process. LESSEE shall also be permitted to consume a portion of
Lease LNG as process fuel. All remaining Lease LNG shall be returned to LESSOR
in the form of regasified LNG and shall be redelivered to LESSOR by LESSEE at
any point of interconnection between the Terminal and an interstate natural gas
transmission pipeline (the “Delivery Point”), as may be specified from time to
time by LESSOR. In the event that any Lease LNG is lost by LESSEE, the
provisions of Paragraph 12 shall apply.

 

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3. Requests for Cargoes. LESSEE shall have the right from time to time to
request that LESSOR provide cargoes of LNG for use by LESSEE pursuant to the
terms of this Agreement. LESSOR shall obtain market quotations for the
acquisition and delivery of LNG cargoes along with information relating to
delivery dates, quantity, and quality. LESSEE shall choose the LNG cargo(es)
LESSEE desires to lease from LESSOR, and shall execute a Lease Confirmation in
substantially the form set forth in Exhibit A.

 

4. Acquisition of Cargoes. Upon receipt by LESSOR of a duly executed Lease
Confirmation by LESSEE, LESSOR shall use commercially reasonable efforts to
purchase and cause such LNG cargo to be delivered to the Terminal. Once
purchased and scheduled for delivery by LESSOR, LNG acquired pursuant to this
Paragraph 4 shall become “Lease LNG”. Upon the delivery of such Lease LNG to the
Terminal, LESSEE shall have the custody and use of the Lease LNG pursuant to
Paragraph 2 of this agreement. Unless otherwise stated herein, title to such
Lease LNG shall at all times remain with LESSOR. LESSOR hereby grants to LESSEE
a first-priority purchase-money security interest in and to the Lease LNG, which
shall be automatically removed and extinguished, without further action of the
Parties, with respect to any of the Lease LNG at the time that the resulting
regasified LNG is redelivered to LESSOR as part of the Redelivery Quantity.

 

5. Acquired Cargoes. The cargoes specified in Exhibit B have been previously
requested by LESSEE, acquired by LESSOR, and have been leased by LESSEE pursuant
to the terms of this Agreement.

 

6. Lease Payment. LESSEE shall pay LESSOR nine decimal eight U.S. cents ($0.098)
per MMBtu delivered quantity of LNG in each LNG cargo, as measured at the
receiving flange of the Terminal (“Lease Fee”) and shall assume full price risk
of the purchase and sale of Lease LNG, and to the extent requested by LESSOR,
shall finance activities hereunder according to Paragraph 8, as full
compensation for the lease services provided hereunder. All payments arising
hereunder shall be made according to the provisions of Paragraph 14.

 

7. Receipt of LNG cargoes. Notwithstanding any provision of the TUA, LESSEE
agrees to provide, at its sole cost and expense, any and all Terminal Services
that may be required for the unloading, storage, and regasification of any full
or partial LNG cargo containing Lease LNG. The unloading, storage,
regasification, and redelivery of the Lease LNG shall not be deemed to be
services performed under the TUA, and the quantity of services available to
LESSOR under the TUA shall not be adversely impacted by the existence of any
Lease LNG, including the utilization of storage capacity for Lease LNG. The
Parties hereto agree that in order to simplify the receipt of Lease LNG
hereunder, the processes and procedures contemplated for delivery and receipt of
LNG under the TUA shall apply to any LNG cargo containing Lease LNG as if such
LNG cargo were being delivered to the Terminal for the account of LESSOR under
the TUA. LESSOR will use commercially reasonable efforts to cause the LNG vessel
owner delivering Lease LNG to the Terminal to execute the Port Liability
Agreement specified in the TUA prior to the loading of the LNG.

 

8.

Cargo Financing and Price Risk Management Activities. Upon request of LESSOR,
LESSEE agrees to fund the LNG cargo acquisition activities described in
Paragraph 4 above and the price risk management activities described in
Paragraph 9 at no cost to

 

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LESSOR. Such funding shall include, without limitation: the cost of purchasing
and securing credit support for the purchasing of Lease LNG, including shipping
and other transportation and delivery charges; the financing and funding of
settlements and of any initial, variation, or maintenance margin, that may be
required for the financial hedging of Lease LNG or the physical sale of
regasified Lease LNG; and the costs associated with securing downstream services
for the transportation and storage of regasified Lease LNG prior to final sale.

 

9. Hedging of Price Risk. Upon request of, and at the final discretion of,
LESSEE, LESSOR agrees to design strategies and to enter into commercially
reasonable price risk hedges using financial derivatives, physical sales
agreements, pipeline transportation, and other agreements usual and customary in
the natural gas marketing business to mitigate the price risk of Lease LNG which
are available to and at the disposal of LESSOR. LESSOR agrees to review its
price risk mitigation plans with LESSEE periodically, but in any case prior to
entering into, material transactions for the mitigation of price risk hereunder,
as such plans may be modified from time to time. LESSOR shall use brokerage
agreements, transportation contracts, physical and financial master agreements,
and other enabling agreements in its portfolio in the execution of price risk
management strategies hereunder.

 

10. Inventory Policy. The Parties agree that for the purposes of tracking the
quantity of Lease LNG hereunder, and for allocating the proceeds of price risk
management strategies, LESSOR shall utilize its “Entegrate” position management
system, and shall track inventory additions and sales using a “first-in,
first-out” inventory policy, on the basis of the date of delivery of each cargo
containing Lease LNG. At all times during the term of this Agreement, LESSEE
shall be entitled to examine reports produced by the “Entegrate” system, but in
all cases the “Entegrate” system shall be the system of record for all
transactions undertaken hereunder.

 

11.

Regasification of Lease LNG. Pursuant to the permitted uses of Lease LNG set
forth in Paragraph 2, LESSEE shall have the right from time to time to specify
that LESSOR receive quantities of regasified Lease LNG from LESSEE. In order to
establish the quantity of Lease LNG to be delivered to LESSOR (“Redelivery
Quantity”) for each day of an ICE Next Day Period, LESSEE shall nominate to
LESSOR, by no later than the Nomination Deadline, the Redelivery Quantity which
LESSEE desires to deliver to LESSOR for each day of the ICE Next Day Period. The
quantity of regasified Lease LNG set forth in LESSEE’s nomination given by the
Nomination Deadline for an ICE Next Day Period shall be the Redelivery Quantity
for each Day of the ICE Next Day Period. By no later than the first day of each
month during the ICE Next Day Period, LESSEE shall give LESSOR an estimate of
the Redelivery Quantity that LESSEE expects to make available for delivery
hereunder during each day of the month. Each such estimate will be updated
throughout the month as LESSEE has better information and if the Redelivery
Quantity is expected to change materially from the prior estimate. For the
purposes of this paragraph, the term: “ICE” means Intercontinental Exchange,
Inc.; “ICE Trading Platform” means the electronic trading platform owned or
operated by ICE on which participants may trade natural gas; “ICE Next Day
Period” means a Day or group of consecutive bays on which natural gas can be
bought and sold, and delivered, under transactions entered into by participants
on the related Next Day Trading Day utilizing the ICE Trading Platform, as

 

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such Day or group of Days are established by ICE from time to time; “Next Day
Trading Day” means the day on which ICE permits participants, utilizing the ICE
Trading Platform, to actually enter into transactions involving the sale of
natural gas for delivery during an ICE Next Day Period; and “Nomination
Deadline” shall mean 7:30 am., Central Time in Houston, Texas, on the Next Day
Trading Day pertaining to the applicable ICE Next Day Period.

 

12. Loss of Lease LNG. In the event that Lease LNG is irretrievably lost and
cannot be redelivered to LESSOR, or is consumed at the Terminal as process fuel,
LESSEE shall be obligated to bear the cost of such lost Lease LNG. In the event
of a loss of Lease LNG, LESSEE shall notify LESSOR and shall compensate LESSOR
for all reasonable and documented costs of such lost Lease LNG. To the event
that all or a portion of the costs of such lost Lease LNG was financed by
LESSEE, LESSOR’s repayment obligation shall automatically be reduced by an
amount equal to the cost of the lost Lease LNG including its proportionate share
of any shipping costs, taxes, and port charges incurred or paid by LESSOR with
respect thereto. Title to all lost Lease LNG shall pass from LESSOR to LESSEE at
the time that a loss is determined.

 

13. Proceeds from the Sale of Regasified Lease LNG. Upon the redelivery of
regasified Lease LNG hereunder by LESSEE to LESSOR, LESSOR shall sell such
Redelivery Quantity and remit the proceeds from such sales as provided herein.
LESSOR shall pay LESSEE an amount equal to: (i) the actual sales proceeds
received by LESSOR in reselling the Redelivery Quantity (including proceeds
derived from the sale of liquids), determined by LESSOR in good faith; minus
(ii) all third party costs incurred by LESSOR in respect to the receipt,
delivery, and resale of the Redelivery Quantity to LESSOR’s resale customers
including, without limitation, costs of conditioning and costs of transportation
of the Redelivery Quantity including fuel and shrinkage (“Net Proceeds”). The
remittance of the Net Proceeds by LESSOR to LESSEE, in conjunction with the
final cumulative net proceeds of any price risk hedges, shall constitute full
repayment of any and all funding amounts advanced by LESSEE to LESSOR pursuant
to Paragraph 8. Any volumetric charges will be converted to a dollar basis in
accordance with standard industry practice LESSEE shall reimburse LESSOR for any
amounts that LESSOR is required to pay its resale customers, or any incremental
costs incurred by LESSOR in keeping its resale customers whole, in either case
arising as a result of LESSEE delivering to LESSOR on any day less than the
Redelivery Quantity for any reason including any Event of Force Majeure that may
occur upstream of the Delivery Point. Any such amounts owed by LESSEE hereunder
shall be credited against the Net Proceeds or paid to LESSOR within ten
(10) days of a receipt of an invoice therefor. LESSOR shall use commercially
reasonable efforts to include force majeure terms in its resale contracts
similar to those herein.

 

14.

Payments. Payment of the Lease Fee shall be made by LESSEE to LESSOR within ten
(10) days following the receipt of each invoice prepared in reasonable detail by
LESSOR, which invoice shall include the inspector’s report setting forth the
quantity of LNG unloaded from each cargo containing Lease LNG at the Terminal
along with such cargo’s compositional analysis. LESSEE shall remit the funding
for the purchase and delivery of Lease LNG no later than one (1) business day
prior to such payment becoming due for the account of LESSOR, or within a
reasonable time period to establish credit support in the

 

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form of a letter of credit. LESSOR shall remit payment to LESSEE of the Net
Proceeds from sales of the Redelivery Quantity no later than one (1) business
day following the receipt of payment from counterparties to whom sales of such
Redelivery Quantity were made. LESSEE shall reimburse LESSOR to the extent of
settlements and all initial, variation, and maintenance margin and other credit
assurances required to be paid for the establishment and maintenance of hedges,
physical transportation, storage or sales, and LESSOR shall reimburse LESSEE to
the extent of settlements and all initial, variation, and maintenance margin and
other credit assurances returned or paid by counterparties for established
hedges, both within one (1) business day of such payments becoming due from, or
paid to, LESSOR. The threshold for payments due hereunder shall be $1,000,000
due to either Party.

 

15. Notices and Other Matters. Any demand, statement, or notice required or
permitted under this Agreement shall be in writing and delivered in person or by
courier service or by any electronic means of transmitting written
communications which provides written confirmation of complete transmission, and
addressed to the individual or department identified below, subject to either
party changing its notice and contact information by prior written notice to the
other party. Payments shall be sent by wire transfer or ACH to the designated
account, or any different account set forth in an invoice, or if no account is
specified, by check to the specified address for payment.

 

LESSOR:    General    Payments   

Cheniere Marketing, Inc.

700 Milam St., Suite 800

Houston, TX 77002

Attn: Contract Administration

  

Bank: JPMorgan Chase, Houston, TX

ABA: 021000021

Account No.: 716483896

For credit to Cheniere Marketing, Inc.

LESSEE:   

Sabine Pass LNG, L.P.

700 Milam St., Suite 800

Houston, TX 77002

Attn: President

  

 

16.

Event of Force Majeure. Non-performance of any obligation hereunder, other than
the obligation to pay amounts due hereunder or an indemnity obligation, shall be
excused if prevented, in whole or part, by an occurrence of an Event of Force
Majeure, but only for so long as performance is prevented by such Event of Force
Majeure. The Party claiming excuse shall promptly advise the other Party of such
Event of Force Majeure with full particulars and shall seek to remedy the
occurrence with all reasonable dispatch by taking all measures that are
commercially reasonable under the circumstances. The term “Event of Force
Majeure” shall mean any event beyond the reasonable control of the Party
claiming excuse including, without limitation, any event or occurrence involving
an act of God; strikes, lockouts, or other industrial disturbances; wars;
insurrections, riots, or other civil

 

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disturbances; landslides; lightning; earthquakes; fires; storms; hurricanes or
threats of hurricanes; floods; governmental restraints or orders; failure,
interruption, or curtailment of transportation or shipping; breakdown or damage
to the equipment, machinery, or facilities at the Terminal or with respect to
pipelines, ships, or tugs, delays or interruptions caused by pilots or
Governmental Authorities having jurisdiction over the Terminal or the associated
harbor, and any other event or occurrence beyond the reasonable control of the
Party and not caused by the negligence of the Party. Notwithstanding anything
herein to the contrary, the settlement of strikes, lockouts, or other industrial
disputes shall be entirely within the discretion of the Party experiencing such
situations, and nothing herein shall require such Party to settle industrial
disputes by yielding to demands made on it when it considers such action
inadvisable.

 

17. Notice of Event of Force Majeure. The Party whose performance is prevented
by an Event of Force Majeure must provide notice to the other Party. Initial
notice may be given orally; however, written notice with reasonably full
particulars of the Event of Force Majeure is required as soon as reasonably
possible. Upon providing written notice of the Event of Force Majeure to the
other Party, the affected Party will be relieved of its obligation, from the
onset of the Event of Force Majeure, to make or accept delivery of the
Redelivery Quantity or Lease LNG, as applicable, to the extent affected by and
for the duration of the Event of Force Majeure, and neither Party shall be
deemed to have failed in such obligations to the other during such Event of
Force Majeure.

 

18. Governing Law. This Agreement shall be governed by, enforced, and construed
in accordance with the laws of the State of Texas excluding any conflicts of law
principles thereof. The Parties hereby irrevocably waive their right to a jury
trial to the fullest extent permitted by law.

 

19. Setoff. Neither Party shall have the right to setoff any amounts due from or
owed to it hereunder against any amounts due from or owed to it hereunder or
under other contracts between the Parties.

 

20. Entire Agreement and Amendments. This Agreement constitutes the entire
agreement between the Parties with respect to the subject matter hereof. No
promises, agreements, or warranties not specifically set forth in this Agreement
will be deemed to be a part hereof, nor will any alteration, amendment, or
modification hereof be effective unless confirmed in writing.

 

21. No Third Party. Beneficiaries Nothing in this Agreement shall be otherwise
construed to create any duty to, or standard of care with reference to, or any
liability to, any person other than a Party to this Agreement; provided,
however, any indemnitee under this Agreement shall be a third party beneficiary
solely with respect to the applicable indemnification.

 

22. Counterpart Execution. This Agreement may be executed in any number of
counterparts and each such counterpart shall be deemed an original Agreement for
all purposes; provided that no Party shall be bound to this Agreement unless and
until both Parties have executed a counterpart. Any documents to be provided by
a Party to the other Party hereunder may sent by fax, PDF, or other electronic
means capable of being received by the intended recipient, and each shall be
considered to be an original of the document.

 

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23. Term and Termination. This Agreement shall become effective on the Effective
Date and, unless terminated earlier pursuant to the other provisions hereof,
shall remain in full force and effect until May 1, 2018 (“Term”). Either Party
may terminate this Agreement during the Term upon ten (10) days prior written
notice; provide, however that this Agreement will not terminate until any
outstanding obligations remaining under this Agreement have been satisfactorily
fulfilled by the Parties hereto.

 

24. Consequential Damages. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY
PUNITIVE, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES ARISING FROM
ITS PERFORMANCE OR FAILURE TO PERFORM HEREUNDER.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in multiple
originals.

 

LESSEE

SABINE PASS LNG, L.P.

     

LESSOR

CHENIERE MARKETING, INC.

By:   /s/ R. Keith Teague       By:   /s/ David Thames Name:   R. Keith Teague  
    Name:   David Thames Title:   President       Title:   President

 

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EXHIBIT “A”

FORM OF LEASE CONFIRMATION

This LEASE CONFIRMATION sets forth the relevant facts concerning the lease of
LNG pursuant to the terms of the certain LNG LEASE AGREEMENT entered into on
24 June, 2008 by and between LESSEE and LESSOR. Capitalized terms used but not
defined herein shall have the definition set forth therein.

 

  1. Projected delivery date:

  2. LNG vessel (if known):

  3. Source country of origin:

  4. Seller:

  5. Projected quantity (MMBtu):

  6. Projected HHV (Btu/scf):

LESSEE agrees to lease the LNG described above upon delivery at the Terminal
pursuant to the terms of the Agreement.

 

LESSEE

SABINE PASS LNG, L.P.

By:     Name:     Title:    

 

Acknowledged and accepted:

LESSOR

CHENIERE MARKETING, INC.

By:

   

Name:

   

Title:

   

 

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EXHIBIT “B”

LNG CARGOES PURCHASED ON BEHALF OF LESSEE

BY LESSOR TO BE MADE SUBJECT TO THE AGREEMENT

1. The LNG Cargo acquired from Ras Laffan Liquefied Natural Gas Company Limited
(II), loaded in Ras Laffan, Qatar aboard the “Al Gharaffa” and scheduled for
delivery at the terminal on June 22, 2008.

2. The LNG Cargo acquired from Total Gas & Power Limited, loaded in Bonny
Island, Nigeria aboard the “Trinity Arrow” and scheduled for delivery at the
Terminal on June 24, 2008.

 

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