Sinopec Doubles LNG Term Intake From Qatar

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Sinopec's expanded low-cost LNG deal with Qatar could shake up China's LNG import market. The deal, between the world's most ambitious LNG exporter and the world's soon-to-be largest LNG importer, allows a major Chinese buyer to take advantage of a slump in LNG market prices, while helping support Qatar's mega-expansion project. Sinopec has agreed to double the quantity of an earlier agreed long-term LNG supply agreement with Qatar Petroleum (QP). Sinopec said Monday that it has signed a sales and purchase agreement (SPA) with QP for 2 million tons per year of LNG supply over 10 years starting 2022. This is a substantial increase from what Sinopec sought in a tender issued last year when it invited offers from sellers for 1 million tons/yr of LNG supply from 2023-33 (LNGI Sep.8'20). QP is understood to have emerged as the winner in the tender by offering Sinopec an extremely competitive price at a 10.19% coefficient of Brent on a delivered basis. Chinese sources confirm that competitive pricing is the key reason why Sinopec has decided to double the quantity of the supply deal. The latest SPA represents Qatar's first term LNG supply deal signed with Sinopec. QP is already a term supplier to fellow Chinese state firms China National Offshore Oil Corp. (CNOOC) and China National Petroleum Corp. (CNPC) under deals that were priced much higher than 10.19% of Brent -- and when oil prices were higher than current levels. The smallest LNG player among the three Chinese state firms, Sinopec’s current long-term LNG suppliers are Exxon Mobil’s PNG LNG and Australia Pacific LNG, where it is one of the partners. Qatar's price is so cheap that Sinopec could afford to increase the volume, said a few international LNG suppliers. The suppliers complained that they do not have the same cost advantage that would allow them to offer such low prices. QP is also understood to have offered similarly competitive prices to buyers in Pakistan and Singapore. Other Chinese LNG buyers are starting to worry about the competition from Sinopec. “It is the lowest price Chinese importers have ever signed for long-term deals ... it will be able to sweep [the] domestic market,” complained an LNG trader from CNPC. QP said it has supplied China with a total of 62 million tons of LNG since 2009. The additional volumes to Sinopec represent a coup for the Southwest Asian exporter, which recently sanctioned its Phase 1 expansion without any firm long-term offtake contracts. The expansion will lift Qatar's LNG production capacity from around 77 million tons/yr today to 110 million tons/yr by 2025 (LNGI Feb.8'21). Separately, QP made further inroads for its LNG expansion by issuing an 'invitation to tender' (ITT) over the weekend for the chartering of LNG carriers for its future LNG shipping requirements including its expansion project. The tender was issued to a large group of LNG ship owners and aims at “selecting world-class ship owners for the long-term time charter [of] LNG carriers to satisfy the future requirements of QP and its subsidiaries,” QP said (LNGI Jun.2'20). The ITT package will also cover the requirements for LNG volumes to be produced from the Golden Pass LNG export project in the US, with options to replace time charters for a number of QP’s LNG carriers that will expire in the next few years. QP will operate Golden Pass through a 70-30 joint venture with Exxon Mobil (LNGI Jun.3'20). Dawn Lee, Beijing, and Yousra Samaha, Dubai

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