Page 11 - AsianOil Week 04

AsianOil EAST ASIA AsianOil
thermal units ($229.58 per 1,000 cubic metres) in January 2019, given by Chinese customs. However, LNG prices have been trending downward since news of the potential trade deal emerged. This week, Asian LNG prices slipped to new multi-year lows, with at least one cargo being sold into Northeast Asia below $4 per mmBtu ($110.64 per 1,000 cubic metres). Reu- ters described this price level as a “psychological barrier”.
And with new supply set to keep entering the global market over the coming years, LNG prices could remain low for some time, giving would-be buyers including Sinopec additional leverage to negotiate more favourable terms. Indeed, Sinopec may end up turning its attention to Cheniere’s competitors if they can offer lower prices for their LNG.
“Sinopec is talking to several other US sup- pliers,” a source told Reuters last week. “It’s really not clear at this stage what will come out.”
The deal will be renegotiated over “delivery terms and price”, an industry executive familiar with the matter was quoted as saying. “It may not be tough, but will take time.”
Sinopec would also have to lobby Beijing to reduce or remove the 25% tariff on US LNG, according to one of Reuters’ sources. The fact that the tariff remains in place for now has been highlighted as a major barrier to the ramp-up of US LNG exports to China.
Some expect it to be phased out promptly as China attempts to meet its target of buy- ing $52bn worth of US energy purchases over the next two years – but the longer this takes, the less likely the commitment is to be met.
What next
Despite the uncertainty surrounding the poten- tial deal with Cheniere, what does seem certain is that Sinopec will seek to step up its LNG pur- chases, regardless of their source. The Chinese company is aiming to more than double its LNG receiving capacity to 41mn tonnes by 2025, and last year it became the country’s biggest spot buyer of the super-chilled fuel. However, it is a much smaller purchaser under long-term deals than PetroChina and China National Offshore Oil Corp. (CNOOC).
The latter two companies are thought to be less likely to seek new offtake agreements with US LNG exporters, given the number of existing long-term contracts they have in place. And a slowdown in domestic demand growth, combined with weaker prices, has led to losses for the firms’ LNG import businesses, which will also make them less likely to hunt for new supply deals.
China’s smaller independent companies, meanwhile, lack significant access to regasifica- tion terminals, making them even less likely to buy US LNG.
“We’ll be in close contact with US suppliers, but price is always the key,” Frank Li, assistant to the president of private city gas distributor China Gas Holdings, was quoted by Reuters as saying. “For now Russian pipeline gas is cheaper, Qatari gas is cheaper.”
This leaves Sinopec as the company most likely to step up purchases of US LNG. For now, however, Chinese tariffs on imports of the fuel from the US remain a significant obstacle. If the tariffs are phased out soon, however, Sinopec will find itself in a strong position to negotiate with US buyers.™
Week 04 29•January•2020 w w w. N E W S B A S E . c o m P11