Exclusive: Sinopec to review potential $16 billion U.S.
gas deal with Cheniere - sources
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[January 17, 2020] By
Chen Aizhu
SINGAPORE (Reuters) - China's Sinopec,
expected to be the next major Chinese buyer of U.S. liquefied natural
gas (LNG), is planning to review terms of a potential $16 billion supply
deal with Cheniere Energy after a sharp drop in LNG prices, industry
officials said.
That could delay sign-off on a deal that would help Beijing meet
ambitious targets it set for U.S. energy purchases in a Phase 1 trade
agreement it signed with the United States on Wednesday.
Sinopec and Texas-headquartered Cheniere had been expected to sign the
20-year deal once a trade truce was reached between Beijing and
Washington.
Sinopec declined to comment, while Cheniere did not respond to a request
for comment.
"(The deal) will be renegotiated... over delivery terms and price," said
an industry executive with knowledge of the matter, who declined to be
named as the matter is not public. "It may not be tough, but will take
time."
Another source familiar with the talks said many items needed to be
reviewed as U.S. gas prices <NGc1> have more than halved since late
2018.
"Sinopec is talking to several other U.S. suppliers," said the second
source. "It's really not clear at this stage what will come out."
The firm, as one of the few state buyers with appetite to sign new
multi-year LNG supply deals, also needs to lobby Beijing to remove or
rebate a 25% tariff that has made U.S. imports uneconomical in the past
year, one of the sources said.
LITTLE COMMUNICATION
Sinopec, which plans to more than double its LNG receiving capacities to
41 million tonnes by 2025, emerged last year as China's biggest spot
buyer of LNG, as it is a much smaller purchaser under long-term deals
than PetroChina or CNOOC.
As they are already committed to other long-term contracts, those two
firms are much less likely to seek new supply agreements with U.S.
exporters.
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A man stands next to a logo of Sinopec, or China Petroleum and
Chemical Corporation, at an expo on rubber technology in Shanghai,
China September 19, 2018. REUTERS/Stringer/File Photo
They are also facing slower domestic demand growth and weaker prices,
which have led to losses in their LNG import business.
State oil firm CNPC has already fufilled its supply needs through
existing deals with Cheniere, and is also anticipating new supply from
its investments in areas such as the Russian Arctic and Mozambique, said
one trading executive.
The prospect of buying U.S. LNG is even more remote for China's
so-called second-tier independent gas companies, because they have
little access to terminal facilities.
"We'll be in close contact with U.S. suppliers, but price is always the
key," said Frank Li, assistant to the president of private city gas
distributor China Gas Holdings. "For now Russian pipeline gas is
cheaper, Qatari gas is cheaper."
A top state-oil trading executive said his level of management had
received no internal briefing from the government over what products
Beijing had in mind when agreeing the Phase 1 trade deal.
"We're already under steep pressure to absorb high-cost term supplies...
and as the market is expected to stay over-supplied beyond 2023, why
should we sign up to more term deals?" a CNOOC gas manager said.
(Reporting by Chen Aizhu; additional reporting by Erwin Seba in Houston
and Scott Disavino in New York; Editing by Florence Tan and Jan Harvey)
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