Scott DiSavino and Jessica Jaganathan by Chen Aizhu

SINGAPORE/NEW YORK – As soaring gasoline prices and power shortages raise concerns about fuel security in the United States, major Chinese energy companies have been engaged in talks with U.S. Exporters.

Sources told Reuters that at least five Chinese businesses, including the State Major Sinopec (NYSE 🙂 Corp and China National Offshore Oil Company China National Offshore Oil Company China National Offshore Oil Company China National Offshore Oil Company China National Offshore Oil Company China National Offshore Oil Company China National Offshore Oil Company China National Offshore Oil Company China National Offshore Oil Company China National Offshore Oil Company China National Offshore Oil Company (NYSE :)) were in negotiations with U.S. Exporters Cheniere Energy and Venture Global Venture Global (NYSE 🙂 Venture Global and Venture Global (NYSE 🙂

Deals worth many billions could be reached, which will lead to a significant increase in China’s LNG exports from America over the next few years. In 2019, at the height of a Sino/U.S. trade conflict, gas trade temporarily stalled. It can take many years to construct LNG export facilities. There are many projects underway in North America that will not begin exporting LNG until at least the middle of this decade.

Early this year, talks with U.S. suppliers started but accelerated in the last months due to one of America’s largest heating fuel shortages in many decades. The price of natural gas in Asia has risen more than fivefold since last year. This raises concerns about power supply shortages during winter.

Companies faced an increase in prices and a supply shortage (for winter). According to a Beijing-based industry source, talks have really picked up after spot prices reached $15/mmbtu in August.

A Beijing source also stated that buyers regretted not signing enough long-term supply contracts after experiencing recent market volatility.

Graphic: China’s natural gas imports since 2018: https://fingfx.thomsonreuters.com/gfx/ce/dwpkrrkwjvm/China%20gas%20imports%20since%202018%20and%20Asia%20spot%20prices.jpg

According to sources, new deals are expected in the next few months after Cheniere was signed a 13-year contract with ENN Natural Gas Co by Cheniere’s ex-LNG chief and China’s largest buyer CNOOC.

It was the U.S. and China’s first major LNG transaction since 2018.

These new acquisitions will cement China’s status as the top global LNG buyer and take over Japan’s role this year.

The first Beijing-based trader stated that companies, as state-owned enterprises are under great pressure to maintain security of supply. However, the price trend of recent years has profoundly changed the perception of long-term supply in the minds of leaders.

People may have viewed the market (or spot) as the key to the past but they are realizing now that the long-term cargoes will be the backbone.

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Because the negotiation is private, sources could not be identified.

Sinopec has declined to comment. CNOOC or Zhejiang Energy declined to comment immediately.

Venture Global and Cheniere declined to comment.

We expect to sign more agreements before the year’s end. The global energy crisis and the rising prices are driving it. U.S. supply now stands out as being attractive.” A third Beijing source was briefed about the talks.

U.S. cargoes are much more affordable than those from Australia or Qatar.

ENN would have offered a similar deal for $2.50 and 115% Henry Hub futures. This deal, according to traders, would amount to roughly $9-$10 for each million British thermal unit (mmBtu), on a shipped basis to Northeast Asia. These figures include an average shipping price of $2 for U.S. to China route.

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 have risen to $37/mmBtu, after hitting a record of more than $56 earlier in the month.

When demand is high, traders anticipate prices rising in winter.

Chinese buyers look for short-term cargoes to satisfy winter demand and longer-term imports. Beijing sees gas consumption as a bridge fuel that will help it reach its 2060 goal of being carbon-neutral. The steady growth in demand through 2035 is expected.

Graphic: Seasonality chart of China’s LNG imports 2017-2021: https://fingfx.thomsonreuters.com/gfx/ce/znpneelxevl/Seasonality%20chart%20of%20China%20LNG%20imports.jpg

Sources said it’s difficult to determine the total volume of deals under discussion. However, Sinopec could have 4 million tonnes per year as its spot market exposure is greater than domestic competitors PetroChina or CNOOC.

Traders reported that Sinopec was in talks with 3-4 companies about buying 1 million tonnes per annum for 10 years starting from 2023. They are also seeking U.S. volume as part of this requirement.

U.S. supply options were also attractive due to delays in LNG exports from Canada (in which PetroChina has a stake) and Mozambique (where both PetroChina & CNOOC have invested), sources said.

Due to demand from major Asian countries, North American LNG exporters are increasing their capacity.

Cheniere, America’s largest exporter, stated in September that it will announce “a variety of transactions” to support the Corpus Stage 3 expansion.

Venture Global will build or develop more than 50 million tonnes (MTPA) in Louisiana’s LNG production capacities. Venture Global includes Calcasieu (10 MTPA) which is estimated to cost $4.5B and be producing LNG test mode by late 2021.

However, buyers were cautious.

The market is abuzz with hype, but no one can predict how long the supply crunch will continue. A separate Chinese importer stated that companies who don’t have new demand within the next year are better off waiting.”