Chinese energy company in conversation with US exporters

Large Chinese energy companies are in advanced conversations with US exporters to ensure long-term liquid gas supplies (LNG) as the rising gas prices and energy shortages in the country increase the concern about fuel safety of the country, several sources.

At least five Chinese companies, including the state major corporations Sinopec (NYSE: SHI) Corp and China National Offshore Oil Company (CNOOC (NYSE: CEO)) and government supported local energy suppliers such as Zhejiang Energy, are in conversations with US exporters, Especially Cheniere Energy (NYSE: LNG) and Venture Global, so the sources to Reuters.

The talks could lead to transactions worth several tens of billion dollars, which would mean a sudden increase in Chinese LNG imports from the United States over the coming years. At the height of trading war between China and the USA in 2019, gas trading had briefly come to a standstill. The construction of LNG export systems can take years, and there are several projects in North America in work that are not expected to start exporting before the mid-decade.

The discussions with the US suppliers began at the beginning of the year, but have been accelerating in recent months given the greatest power and boiler shortages for decades. The natural gas prices in Asia have risen more than five times this year and have aroused fears of electricity bottlenecks in winter.

"The companies were confronted with a supply gap (for winter) and strongly rising prices. Since August, as the spot prices reached $ 15 / Mmbtum, the talks have started driving," said a high-ranking industrial source based in Beijing, which with the Conversations is familiar.

Another source in Beijing said: "According to recent massive market fluctuations, some buyers regretted that they did not complete enough long-term delivery contracts."

The sources expected new financial statements in the coming months after the privately controlled Enn Natural Gas Co. had announced a 13-year contract with Chenooc on Monday under the direction of the former LNG chief of China's largest buyer CNOOC .

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

The new purchases are also consolidated China's position as the world's largest LNG buyer, who has replaced Japan this year.

"As a state-owned company, all companies are under the pressure to maintain security of supply, and the recent price development has changed the picture of long-term deliveries in the heads of the leadership profoundly," said the first dealer in Beijing.

"People may have regarded the spot market as a key in the past, but now they recognize that long-term deliveries are the backbone."

Cheaper U.S. GAS

The sources did not want to be mentioned because the negotiations are private.

Sinopec refused an opinion. CNOOC and Zhejiang Energy did not respond immediately upon request for comment.

Venture Global and Chencing posted both an opinion.

"We expect further contracts before the end of the year. This is primarily due to the worldwide energy crisis and the current prices ... US supplies are now particularly attractive," said a third source in Beijing, who over the Talks were informed.

US loads were previously expensive compared to oil-bound deliveries from Qatar and Australia, but are now cheaper.

A business to $ 2.50 + 115% of Henry Hub Futures similar to the Enn business according to traders would be about $ 9 to $ 10 per million British Thermal Units (MMBTU) upon delivery to Northeast Asia. This includes average transport costs of $ 2 per MMBTU for the route USA-China.

Jason Fener, Global Head of Business Intelligence at the consulting firm's potential & partner, said Chinese companies are heavily dependent on the Brent prices for LNG and enable purchases in the United States a certain diversification of pricing.

Asian Spotgas prices are currently over $ 37 / MMBTU after you reach a record high of over $ 56 at the beginning of the month.

Traders assume that the prices will continue to rise in winter if demand is typically rising.

Chinese buyers are looking for both short-term deliveries to cover demand this winter, as well as long-term imports, as the demand for gas considered by Beijing as an important bridge fuel prior to reaching his target of carbon neutrality in 2060 to 2035 should increase steadily.

It was difficult to estimate the total volume of the transactions discussed, so the sources, but SINOPEC alone could face 4 million tons annually, as the company is the strongest of the spot market compared to the native competitors Petrochina and CNOOC, such a third source .

According to traders, Sinopec is in conclusive discussions with three to four companies over the purchase of 1 million tonnes per year for a period of ten years, starting in 2023, and is looking for US quantities as part of the requirement.

Delays in LNG export projects in Canada where Petrochina is involved, and in Mozambique, where both Petrochina and CNOOC have invested US supplies also attractive, so the sources continue.

The North American LNG exporters have expanded their capacity due to demand in the great Asian economies.

Chencing, the largest exporter from the United States, said at the end of September that he will announce "a number of other transactions" that will support the continuation of Corpus Stage 3 expansion next year.

Venture Global builds or develops LNG production capacities of more than 50 million tonnes per year (MTPA) in Louisiana, including the 10 MTPA system Calcasieu, which should start around $ 4.5 billion and starting at the end of 2021 in the test operation with LNG production .

However, some buyers remained reserved.

"There is a great hype in the market, and no one knows how long these delivery bottlenecks will continue. For companies that have no new demand in the next one to two years, it is better to wait," said a Chinese importer.