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NorthAmOil COMMENTARY NorthAmOil
Sinopec reportedly to review potential Cheniere deal
Reports have emerged that China’s Sinopec is planning to review the terms of a potential supply deal it is expected to strike with US LNG exporter Cheniere Energy once trade relations between the two countries improve
US-CHINA
WHAT:
Sinopec is reportedly planning to review the terms of a potential supply deal with the US’ Cheniere Energy.
WHY:
LNG prices have fallen considerably since news of the potential deal first emerged last year.
WHAT NEXT:
China’s tariff on US LNG remains a significant barrier to new purchases.
COLD water has been poured on US hopes that Chinese firms will rush to sign new offtake agreements as trade relations between the two countries improve in the wake of the “Phase One” deal signed between the two countries. Citing sources familiar with the matter, Reuters reported on January 17 that China’s state-owned Sinopec was intending to review the terms of a potential supply deal with US LNG exporter Cheniere Energy.
Neither company has publicly commented on the matter, but a desire to review terms would be unsurprising, given that LNG prices have fallen considerably since news of the potential deal emerged in early 2019. And any renegoti- ation could slow Chinese efforts to meet ambi- tious new targets for purchases of energy from the US, as set out under the Phase One trade deal and reported by NewsBase last week. (See: GLNG Week 02.)
Bad review
A review of the terms of a potential supply deal comes as blow for Cheniere, which had been counting on Chinese buyers returning once the US-China trade war is brought to an end.
Indeed, the review also spells bad news for other US LNG developers, some of whom are still seeking sufficient offtake agreements to proceed with the construction of new terminals, and who had also been optimistic about future Chinese demand. However, as the trade war has been playing out, the market has become increasingly oversupplied with LNG, resulting in downward pressure on prices for the fuel and a more chal- lenging operating environment for sellers.
The deal Sinopec had been anticipated to sign with Cheniere is thought to be worth $16bn, covering a period of 20 years. In March 2019, it was reported that the two companies had reached a consensus in late 2018 on com- mercial terms following months of negotiations. However, the signing of the deal was held back by the ongoing trade friction between the US and China, sources familiar with the matter said at the time.
It was reported that Sinopec intended to buy close to 2mn tonnes per year (tpy) of LNG from Cheniere starting in 2023, though a Reu- ters source added last year that the US company might start delivering some supplies before that date.
Cheniere Energy
had been counting
on Chinese buyers returning once the US-China trade war is brought to an end.
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Week 04 29•January•2020