EXCLUSIVE China wants to hold US liquefied natural gas in the energy crisis

SINGAPORE / NEW YORK, Oct.15 (Reuters) – Major Chinese energy companies are in advanced talks with U.S. exporters to secure long-term supplies of liquefied natural gas (LNG) as rising gas prices and domestic power shortages raise concerns about fuel safety in the country Land increase, said multiple sources.

At least five Chinese companies, including the state-owned Sinopec Corp and China National Offshore Oil Company (CNOOC), as well as local government-backed energy distributors like Zhejiang Energy, are in talks with US exporters, mainly Cheniere Energy (LNG.A) and Venture Global. the sources told Reuters.

The discussions could result in tens of billions of dollars in deals that would spur Chinese LNG imports from the United States in the coming years. At the height of a Sino-American trade war in 2019, gas trading came to a brief standstill. LNG export facilities can take years to build, and several projects are in the works in North America that are not expected to begin exporting until mid-decade.

Talks with US suppliers began earlier this year, but have accelerated in recent months amid one of the largest power generation and heating oil crises in decades. Natural gas prices in Asia have more than quintupled this year, raising concerns about electricity shortages in winter.

“Companies were faced with a supply gap (for the winter) and rising prices. Talks have really picked up since August when spot prices hit $ 15 / mmbtu, ”said a Beijing-based senior industry source who was briefed on the talks.

Another Beijing-based source said, “After experiencing the recent massive market volatility, some buyers regretted not having signed enough long-term supplies.”

Imports for the winter of 2021 will be limited as rising prices affect demand around the world

Sources expected new deals to be announced in the coming months after privately-controlled ENN Natural Gas Co, (600803.SS), led by the former LNG chief of China’s largest buyer CNOOC, announced a 13-year deal with Cheniere Monday. Continue reading

It was the first major LNG deal between the US and China since 2018.

The new purchases will also cement China’s position as the world’s largest LNG buyer, replacing Japan this year.

“As a state-owned company, companies are all under pressure to maintain security of supply, and the recent price trend has profoundly changed the image of long-term delivery in the minds of executives,” said the first Beijing-based trader.

“People in the past may have viewed the spot (market) as key, but now they realize that long-term charges are the backbone.”


The sources did not want to be identified as the negotiations are private.

Sinopec declined to comment. CNOOC and Zhejiang Energy did not immediately respond to requests for comment.

Venture Global and Cheniere both declined to comment.

“We expect more contracts to be signed before the end of the year. This is mainly being driven by the global energy crisis and the prices we are seeing now … US supplies are attractive now,” a third Beijing source said on the Conversations was informed.

US cargoes used to be expensive compared to oil-linked shipments from, for example, Qatar and Australia, but now they are cheaper.

A $ 2.50 + 115% deal in Henry Hub Futures, similar to ENN’s deal according to traders, would be approximately $ 9-10 per million British Thermal Units (mmBtu) on a shipped basis to Northeast Asia. This includes an average shipping cost of $ 2 per mmBtu for the US-China route.

Jason Feer, global head of business intelligence at consulting firm Poten & Partners, said Chinese companies are heavily exposed to Brent-related prices for LNG, and purchases in the US add some variety to pricing.

Asian spot gas prices are currently trading at over $ 37 per mmBtu after hitting a record high of over $ 56 earlier this month. Continue reading

Traders expect prices to rise in winter when demand usually increases.

Chinese buyers are looking for both short-term supplies to meet this winter’s demand and long-term imports as gas demand, which Beijing sees as a key bridging fuel before reaching its carbon neutral 2060 target, will steadily grow through 2035.

China’s imports in the first half of 2021 rose 28% year over year in a counter-seasonal increase, but imports in the second half were limited by high prices

It’s hard to estimate the total volume of deals being discussed, sources said, but Sinopec alone could keep an eye on 4 million tons annually as the company is hardest hit by the spot market compared to domestic rivals PetroChina and CNOOC, a third source said.

Traders said Sinopec is in final talks with 3 to 4 companies to buy 1 million tons per year for 10 years from 2023 and is looking for US volumes as part of the request.

Delays in LNG export projects in Canada, in which PetroChina is involved, and Mozambique, where both PetroChina and CNOOC have invested, also made U.S. shipments attractive, sources added.

North American LNG exporters have increased their capacities due to demand in the major Asian economies.

Cheniere, the largest exporter from the United States, said in late September that it expects to announce “a number of other deals” that will support their progress in Corpus Stage 3 expansion over the next year.

Venture Global is building or developing over 50 million tonnes per year (MTPA) of LNG production capacity in Louisiana, including the 10-MTPA Calcasieu, which is expected to cost around $ 4.5 billion and will begin test-mode production of LNG in late 2021 will. read more

However, some buyers remained cautious.

“There is a lot of hype in the market and nobody knows exactly how long this supply crisis would last. For companies that don’t have any new demand in the next year or two, it is better to wait, ”said a separate Chinese importer.

Reporting by Chen Aizhu, Jessica Jaganathan in Singapore and Scott Disavino in New York; additional coverage from Gary McWilliams in Houston; Adaptation by Raju Gopalakrishnan, Jason Neely, Peter Graff

Our Standards: The Thomson Reuters Trust Principles.

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