SINGAPORE/NEW YORK, Oct 17 – Major Chinese energy companies are in advanced talks with U.S. exporters to secure long-term liquefied natural gas (LNG) supplies, with soaring gas prices and domestic power shortages heightening concerns about China’s fuel security.
At least five Chinese firms, including state major Sinopec Corp and China National Offshore Oil Company (CNOOC) and local government-backed energy distributors like Zhejiang Energy, are said to be in discussions with U.S. exporters, mainly Cheniere Energy and Venture Global.
This could lead to deals worth tens of billions of dollars, marking a surge in China’s LNG imports from the United States in the coming years. At the height of a China-U.S. trade war in 2019, gas trade briefly came to a standstill.
LNG export facilities can take years to build, and there are several projects in North America in the works that are not expected to start exporting until 2025.
Talks with U.S. suppliers began early this year but speeded up in recent months amid one of the biggest power-generating, heating fuel crunch in decades. Natural gas prices in Asia have jumped more than fivefold this year, sparking fears of power shortages in the winter.
A Beijing-based source said, “After experiencing the recent massive market volatility, some buyers were regretting that they didn’t sign enough long-term supplies.”
Sources expected fresh deals to be announced over the coming few months, after privately controlled ENN Natural Gas Co, headed by the ex-LNG chief of China’s largest buyer, CNOOC, announced a 13-year deal with Cheniere on Monday.
First major U.S.-China LNG deal since 2018.
The new purchases will also cement China’s position as the world’s top LNG buyer, taking over from Japan this year.
“As state-owned enterprises, companies are all under pressure to keep the 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.
CHEAPER U.S. GAS
“We expect more deals to be signed before year-end. It’s primarily driven by the global energy crunch and prices we’re seeing now… U.S. supplies now stand out as attractive,” said another Beijing source.
U.S. cargoes used to be expensive versus oil-linked supplies from Qatar and Australia for example but are now cheaper.
Jason Feer, global head of business intelligence with consultancy Poten & Partners said Chinese companies are heavily exposed to Brent-related pricing for LNG and the U.S. purchases give some diversity to the pricing.
Asian spot gas prices are currently trading at above $37 per mmBtu after reaching a record high of over $56 earlier this month.
Traders expect prices to go higher in winter when demand typically surges.
Chinese buyers are scouting for both near-term 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.
Traders said Sinopec is in final talks with 3 to 4 companies to buy 1 million tonnes a year for 10 years, starting from 2023, and is looking for U.S. volumes as part of the requirement.
Delays in LNG export projects in Canada, in which PetroChina owns a stake, and Mozambique, where both PetroChina and CNOOC have invested, also made U.S. supplies attractive.
North American LNG exporters have been adding to capacity because of demand in major Asian economies.
Cheniere, the largest exporter out of the United States, said in late September it expects to announce “a number of other transactions” that will support their going forward with the Corpus Stage 3 expansion next year.
However, some buyers remained cautious.
“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 the next year or two, it’s better to wait,” said a separate Chinese importer.