China’s Sinopec is planning to review terms of a potential $16 billion liquefied natural gas supply deal with Cheniere Energy, industry officials told Reuters.
That could delay sign-off on a deal that would help Beijing meet ambitious targets it set for U.S. energy purchases in Phase 1 of the U.S.-China trade deal signed last week, Kallanish Energy understands.
Sinopec, aka, 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 changed since news of Sinopec and Cheniere’s negotiations became public early in 2019.
Trade war erased purchases
Since then, the U.S.-China trade war erased China’s purchases of U.S. 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 more leverage with Cheniere.
Both companies declined comment.
Many items must be reviewed
A source familiar with the talks told Reuters many items needed to be reviewed as U.S. gas prices have more than halved since 2018.
“Sinopec is talking to several other U.S. 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% tariff that has made U.S. imports uneconomical in the past year, one of the sources told Reuters.
“(The deal) will be renegotiated … over delivery terms and price,” said an industry executive with knowledge of the matter, who requested anonymity.
Sinopec is China’s largest LNG spot buyer
Sinopec, which plans to more than double its LNG receiving capacity 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 Company 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 U.S. exporters. They are also facing slower domestic demand growth and weaker prices, which have led to losses in their LNG import business, Reuters reported.
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, one trading executive told Reuters.
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