China in talks with U.S. exporters to secure long-term LNG supply amid fuel safety concerns


Major Chinese energy companies are in advanced talks with U.S. exporters to secure long-term supplies of liquefied natural gas (LNG), as soaring gas prices and power shortages in the country compound concerns about the the country’s energy security, several sources said.

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 and Venture Global, said. sources at Reuters.

The talks could lead to tens of billions of dollars in deals that would mark an increase in Chinese LNG imports from the United States in the years to come. At the height of a Sino-US trade war in 2019, gas trade briefly came to a halt. Construction of LNG export facilities can take years, and several projects in North America are not expected to start exporting until mid-decade.

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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 supply shortage (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 regretted 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, led by the former LNG chief of China’s biggest buyer, CNOOC, announced a deal on Monday. 13 years old with Cheniere.

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.

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“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.”


The sources declined 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 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 $ 2.50 + 115% Henry Hub futures deal, similar to the ENN deal according to traders, would be around $ 9 to $ 10 per million British thermal units (mmBtu) on a base delivered to North-East 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.

Spot gas price in Asia Currently trading at over $ 37 per mmBtu after hitting a record high of over $ 56 earlier this month.

Traders expect prices to rise in the winter, when demand typically increases.

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 bridging 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 aim for 4 million tonnes per year, as the company is the most exposed to the spot market compared 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, the 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.

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.

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