Chinese Buyers Scour Globe for LNG

As China overtakes Japan to become the world’s No. 1 LNG importer, Chinese buyers' desire for more long-term deals shows no signs of fading. With spot prices going through the roof, almost every importer — ranging from the three state-run majors to second-tier firms — is keen to sign a cheaper term contract while prices remain low enough to attract end-users.

Nearly all buyers are in talks with international gas suppliers as Beijing looks to reduce coal use. China National Petroleum Corp. (CNPC), the country's largest piped gas importer, prefers term contracts for piped gas to LNG, but most other importers are keener on LNG. Importers believe that whoever manages to secure enough cheap gas to enlarge their customer base now will be king in terms of downstream market share in a few years.  

The hunt for term deals comes as Beijing has also sent suppliers on the search for spot LNG shipments to meet demand this winter. Insiders say the government is most concerned about meeting residential demand.

Three long-term LNG deals have been concluded in the past two weeks.

Under the most recent, on Oct. 11, US-based Cheniere Energy will supply about 900,000 tons per year on an f.o.b. basis to private city gas distributor ENN Natural Gas for 13 years beginning in July 2022.

In late September, state-run China National Offshore Oil Corp. (CNOOC) signed a 15-year sales and purchase agreement with QatarEnergy (formerly Qatar Petroleum) for 3.5 million tons per year starting in January 2022.

The third deal, between BP and Shenzhen Gas subsidiary Shenzhen Hua'an Liquefied Petroleum Gas, will run for 12 years. The UK major will supply 225,000 tons/yr of LNG in 2023-24 before increasing shipments to 300,000 tons/yr from 2025 through December 2032. BP had in July signed a contract with fellow city gas distributor Guangzhou Gas for LNG deliveries starting in 2022.  

ENN said the Cheniere deal is its first solely linked to US Henry Hub pricing. Shenzhen Gas' deal will be price linked to oil benchmark Brent at a slope of about 11%-plus, sources tell Energy Intelligence. Shenzhen Gas is based in Guangdong province, and the pricing is similar to that of previous deals BP has signed with Guangdong local government-run companies.  

Chinese buyers fear that if they don't sign long-term deals now, they will have to wait until 2025 when more LNG projects should be on line. Aside from BP, Cheniere and US-based Venture Global — which has nearly completed its Calcasieu Pass project and has started early work on Plaquemines LNG — sources say few sales options are on the table, although they expect more deals to be signed this year if prices remain comparatively cheap.  

Deliberate Power Shortages  

China is not only on the hunt for gas. Like many other countries across the globe, it is also being wracked by electricity shortages that have left homes and businesses facing power cuts and rationing.

Some claim the power shortages are deliberate, designed to ensure polluting factories will be shut during the Beijing Winter Olympics, which start on Feb. 4.

More and more local governments have raised power tariffs for energy-intensive industries as they focus on meeting residential needs and ensuring blue skies during the games, an LNG trader says. Something similar happened before the Beijing Summer Olympics in 2008, when diesel shortages were reported as the government moved to cut pollution in and around the capital.  

The National Development and Reform Commission (NDRC), China’s top planning agency, said late last month it has secured 174.4 billion cubic meters of natural gas for the four-month heating season that starts in mid-November. It has also told state-owned firms to keep increasing domestic output. Production totaled 136.1 Bcm in the first eight months of 2021, the NDRC says, 10.8% higher year on year.