EXCLUSIVE China seeks to lock down US LNG as energy crisis raises concerns – sources


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), amid soaring gas prices and shortages electricity sources are compounding concerns about the country’s energy security, according to several sources.

At least five Chinese companies, including Sinopec Corp and China National Offshore Oil Company (CNOOC) and 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 talks could lead to agreements worth tens of billions of dollars that would mark an increase in Chinese imports of LNG from the United States. At the height of the Sino-US trade war in 2019, gas trade briefly came to a halt.

Talks with U.S. suppliers began earlier this year, but have gained momentum in recent months amid one of the biggest fuel shortages for heating and power generation in decades. Natural gas prices in Asia have more than quintupled this year, raising fears of power shortages in winter.

“Businesses have faced a shortage of supply (for the winter) and soaring prices. Talks have really resumed since August, when spot prices hit $ 15 / mmbtu,” a source said. Beijing-based industry leader briefed on talks.

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

Sources expected new deals to be announced in the coming months, after privately-held 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 on Monday. Read more

It was the first major LNG agreement between the United States and China since 2018.

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

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

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

CHEAPER AMERICAN GASOLINE

The sources declined to be named because the negotiations are private.

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

Venture Global declined to comment. Cheniere did not immediately respond to a request for comment.

“We expect more deals to be signed before the end of the year. This is mainly due to the global energy crisis and the prices we are currently seeing … US supplies are now attractive.” , said a third source from Beijing briefed on the talks.

American cargo was once expensive compared to oil-related supplies from Qatar and Australia, for example, but it’s cheaper now.

A deal at $ 2.50 + 115% Henry Hub futures, similar to the ENN deal according to traders, would be around $ 9-10 per million British thermal units (mmBtu) on a delivered in 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-linked prices for LNG and that US purchases give some price diversity.

Asian gas spot prices are now at a near record high at over $ 30 per mmBtu. Long-term LNG deals tied to oil prices run around $ 10-11 per mmBtu, although both calculations vary based on liquefaction costs, premiums, and the oil futures price assumption. and gas.

Chinese buyers are looking for both short-term shipments to cover demand this winter and long-term imports, as demand for gas, seen by Beijing as a key fuel before reaching its carbon neutral goal in 2060, is expected to experience steady growth until 2035.

It is difficult to estimate the total volume of deals under discussion, sources said, but Sinopec alone could target 4 million tonnes per year, as the company has the most spot exposure relative to its domestic rivals PetroChina and CNOOC, a third source said.

Traders said Sinopec is in final talks with 3-4 companies to purchase 1 million tonnes per year for 10 years, starting in 2023, and is looking for US volumes as part of the requirement.

Delays in LNG export projects in Canada, in which PetroChina has a stake, and Mozambique, where PetroChina and CNOOC have invested, have also made US supplies attractive, sources added.

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

Cheniere, the United States’ largest exporter, said in late September that it planned to announce “a number of other transactions” that will support it in the further expansion of Corpus Stage 3 next year.

Venture Global is building or developing more than 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 start producing LNG in test mode at the end of 2021. read more

However, some buyers remained cautious.

“There is a lot of hype in the market and no one is sure how long this supply crunch would last. For companies that don’t have new demand in a year or two, it’s better to wait.” , said a separate Chinese importer.

Reporting by Chen Aizhu, Jessica Jaganathan in Singapore and Scott Disavino in New York; additional reporting by Gary McWilliams in Houston; Editing by Raju Gopalakrishnan

Our Standards: Thomson Reuters Trust Principles.

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