Page 4 - GLNG Week 35 2022

GLNG COMMENTARY GLNG

China sees long-term

LNG deal frenzy

COMMMENTARY CHINESE gas importers have clinched a raft March a heads of agreement (HoA) with Guang-
of long-term LNG deals since last year, mostly dong Energy Group Natural Gas for 1.5mn tpy
with durations of between 15 and 20 years. This of supply for 20 years from the Rio Grande LNG
shows that despite a predicted record dip in Chi- project in Texas. In April, it struck a 20-year
na’s LNG purchases this year, there remains con- agreement with ENN for a further 1.5mn tpy of
fidence in the long-term demand prospects for LNG from Rio Grande, and then in July it agreed
the fuel in the country. And the fact that many to deliver 1mn tpy of LNG to China Gas.
of these agreements have been reached with the Qatar too is stepping up its LNG trade with
US raises questions about how much gas the EU China. In September last year, QatarEnergy
can obtain, given it is counting on US exporters signed a deal with CNOOC for 3.5mn tpy of
to help it eliminate Russian pipeline gas imports supply over 15 years, and in December, China
in the years to come. Suntien Green Energy in December reached a
The latest government data shows that Chi- contract with Qatargas 2 for 1mn tpy over 15
nese LNG imports dropped 15.4% year on year years, and Guangdong Energy Group Natural
to 4.74mn tonnes in July, and supplies were down Gas Co. agreed to buy 1mn tpy of LNG from for
20.3% y/y in the first seven months of 2022. But 10 years from QatarEnergy.
this is seen as a short-term phenomenon relating Notably absent from this frenzy of deal-mak-
to coronavirus (COVID-19) lockdowns, and it ing has been Australia, despite its dominant role
should be noted that the slump follows a record as a supplier to China. And this is despite the fact
jump in Chinese LNG imports in 2021. that Woodside’s Scarborough project is under
China, like other Asian gas markets, had been construction and only 36% of its supply is con-
shifting towards short-term spot deals in the tracted. Woodside took a final investment deci-
years before the energy crisis started. But with sion (FID) on the Scarborough and Pluto Train 2
spot prices now soaring, buyers are now eager to projects last year. This might be explained by the
enter into more long-term deals, to protect their fact that China tends to be hesitant about rely-
energy security into the future at prices that are ing on any one country too much for its energy
affordable. China only signed a handful of long- imports. It may also be because Woodside is
term deals in 2020, but went on to sign 23 in 2021 reluctant to contract too much supply under
and the trend has continued into this year. long-term deals, and would prefer to let the pro-
ject benefit from continuing significant demand
Deal frenzy for LNG on the Asian spot market.
Among the deals, US firm Venture Global signed
two 20-year agreements to supply a combined Implications for Europe
4mn tonnes per year of LNG to China’s Sinopc China’s thirst for long-term LNG supply will
from its Plaquemines LNG terminal in Louisi- have implications for Europe, which appears
ana. Venture Global also entered into a 20-year to be struggling to pen many agreements itself,
deal with CNOOC Gas & Power in Decem- despite initiating a host of new LNG regasifi-
ber last year for 2mn tpy from Plaquemines. cation projects over the months since Moscow
CNOOC also committed to taking 1.5mn tpy of launched its invasion of Ukraine. Simply put,
LNG from Venture Global’s Calcasieu Pass facil- while China is bullish on the long-term demand
ity, also in Louisiana. prospects for gas, especially given its ongoing
Meanwhile, Cheniere Energy in November efforts to phase out coal-fired power eventually,
last year penned a deal with China’s Sinochem Europe is reluctant to make long-term commit-
for 900,000 tpy of LNG over 17.5 years, and ments to purchase gas because its policymakers
the volume could be raised later to 1.8mn tpy assume that gas demand will fall significantly in
if both sides agree to it. Cheniere also agreed to the coming years as the energy transition gains
sell 1.8mn tpy of LNG from its Corpus Christi momentum.
terminal between 2026 and 2050 to PetroChina. This makes policymakers and the energy
Guangzhou Development Group in April this companies following those policies more
year reached a 20-year deal for 2mn tpy of LNG attracted to short-term LNG agreements. But
from Mexico Pacific LNG markets – specifically this is not the preference of the suppliers, put-
its upcoming West Coast North American LNG ting Europe at the risk of being outcompeted on
project in Sonora, Mexico. terms by Asian customers. And the latest frenzy
NextDecad has signed three long-term deals of long-term deals in China suggests that may be
with Chinese buyers this year, including in exactly what is happening.™

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