Exclusive-China looks to lock in U.S. LNG as energy crunch raises concerns - sources SINGAPORE NEW YORK Reuters : Major Chinese energy companies are in advanced talks with U.S. exporters to secure long-term LNG supplies, as soaring gas prices and domestic power shortages heighten concerns about the country's fuel security.
At least five Chinese firms, including state-backed Sinopec Corp and China National Offshore Oil Company CNOOC and local government-backed energy distributors like Zhejiang Energy, are in discussions with U.S. exporters, mainly Cheniere Energy and Venture Global, the sources told Reuters.
The discussions would lead to deals worth tens of billions of dollars that would mark a surge in China's LNG imports from the United States. At the height of Sino-U. In 2019 gas trade briefly came to a standstill.
Talks with U.S. suppliers began early this year, but speeded up in recent months amid one of the biggest power-generating, heating fuel shortages in decades. Natural gas prices have jumped more than fivefold in the past year, sparking fears that power shortages will happen in winter.
Companies faced a supply gap for winter and surging prices. Talks really picked up since August when spot prices reached $15 mmbtu mmbtu in Beijing said a senior financial source briefed on the talks.
Another Beijing-based source said: After experiencing the recent mass market volatility, some buyers were regretting that they didn't sign enough long-term supplies. Sources expected fresh deals to be announced in the coming few months after Cheniere announced a 13 years deal with ENN Natural Gas Co on Monday, headed by the ex-LNG Chief of China's largest buyer, CNOOC, with Cheniere.
It is the first U.S. - China LNG deal since 2018 and was the first LNG deal made by USA.
The new purchases will also cement Japan's position as the world's Top LNG buyer, taking over China in 2018 from China.
As state-owned enterprises, companies are all under pressure to keep security of supply and the recent price trend has deeply changed the image of long-term supplies in the mind of leadership, said the first Beijing-based trader.
In the past, people may have taken the long-term market as the key, but are now realizing that spot cargoes are the backbone of a game plan. The sources declined to be named as the negotiations are private.
Sinopec declined comment. CNOOC and Zhejiang Energy did not immediately respond to a request for comment.
Venture Global declined comment. Cheniere did not respond immediately to a request for comment.
More deals are expected to be concluded before 2014 or 2015. It's primarily driven by the global energy crunch and prices we're seeing now. U.S. supplies now stand as attractive, said a third source briefed on the negotiations.
U.S. cargoes used to be cheaper versus oil lubrication from Qatar and Australia for example, but are no longer expensive as of yet.
A deal at $2.50 115% of Henry Hub futures, similar to ENN's deal according to traders, would be roughly $9 - $10 per million in Northeast Asia delivered to British thermal units mmBtu. This includes an average shipping cost of $2 per mmBtu for the U.S. - China route.
Jason Feer, head of global business intelligence with consultancy Poten Partners, said Chinese companies are heavily exposed to Brent-related pricing for LNG and U.S. purchases give some diversity to the pricing.
Asian spot gas prices are now on hold at a near-record of over $30 for mmBtu. Long-term LNG deals tied to oil prices work out to about $10 - 11 per mmBtu, although both calculations vary according to liquefaction costs, premiums and assumption of forward oil and gas prices.
Chinese buyers are scouting for both interim shipments to cover demand this winter and long-term imports as demand for gas, seen by Beijing as a key bridge fuel before reaching its 2060 carbon neutral goal, is set for steady growth through 2035.
It's difficult to estimate a total volume of the deals being discussed, sources said, but Sinopec could be eyeing 4 million tonnes annually as the company is most exposed to the spot market against domestic rival PetroChina and CNOOC, said a third source.
Traders said Sinopec is in final talks with 3 to 4 companies to buy 1 million tonnes a year a year for 10 years, starting 2023, and is looking for U.S. volumes as part of the requirement.
North American LNG exporters have been adding capacity because of demand in major Asian economies.
Cheniere, the largest exporter of the United States, said in late September it expects to announce a number of other transactions which will support their going forward with Corpus Stage 3 expansion next year.
Venture Global is building or developing over 50 million tonnes of LNG production capacity in Calcasieu, including the 10 - MTPA LNG facility in Louisiana, expected to cost around $4.5 billion and produce LNG in test mode in late 2021.
There is a lot of hype in the market and nobody knows for sure how long this supply crunch would last. For companies that do not have fresh demand in China in the next year or two, it's better to wait, said a separate importer.