SINGAPORE: China’s Sinopec, expected to be the next major Chinese buyer of US liquefied natural gas (LNG), is planning to review terms of a potential $16 billion supply deal with Cheniere Energy Inc after a sharp drop in LNG prices, industry officials said.
That could delay sign-off on a deal that would help Beijing meet ambitious targets it set for US energy purchases in a Phase 1 trade agreement it signed with the United States on Wednesday.
Sinopec, officially named China Petroleum & Chemical Corp, and Houston-based Cheniere had been expected to sign the 20-year deal once a trade truce was reached between Beijing and Washington.
However, the LNG market has shifted since news of Sinopec and Cheniere’s negotiations became public early last year. In the intervening period, the US-China trade war sapped Chinese purchases of US LNG, and several other gas suppliers, including Qatar, the lowest-cost producer, decided to build new export plants.
That coming supply would add to an existing glut that has caused gas prices to collapse to their lowest levels in years and could keep them suppressed —giving Sinopec additional leverage with Cheniere.
Both companies declined to comment.
A source familiar with the talks said many items needed to be reviewed as US gas prices have more than halved since 2018.
“Sinopec is talking to several other US suppliers,” said a second source. “It’s really not clear at this stage what will come out.”
The firm, as one of the few state buyers with appetite to sign new multi-year LNG supply deals, also needs to lobby Beijing to remove or rebate a 25 per cent tariff that has made US imports uneconomical in the past year, one of the sources said. “(The deal) will be renegotiated... over delivery terms and price,” said an industry executive with knowledge of the matter, who declined to be named as the matter is not public. “It may not be tough, but will take time.”
Sinopec, which plans to more than double its LNG receiving capacities to 41 million tonnes by 2025, emerged last year as China’s biggest spot buyer of LNG, as it is a much smaller purchaser under long-term deals than PetroChina Co Ltd or China National Offshore Oil Corp (CNOOC).
Those two firms are committed to other long-term contracts, and therefore much less likely to seek new supply agreements with US exporters. They are also facing slower domestic demand growth and weaker prices, which have led to losses in their LNG import business.
State oil firm China National Petroleum Corp (CNPC) has already fulfilled its supply needs through existing deals with Cheniere, and is also anticipating new supply from investments in the Russian Arctic and Mozambique, said one trading executive. — Reuters
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