China-US energy link signals revival of long-term gas deals

  • Feb 14, 2018
  • Gulf Times

The reported death of the long-term liquefied natural gas contract may have been exaggerated.

China National Petroleum Corp’s 25-year deal with Cheniere Energy to buy US gas is the longest supply contract signed globally since 2011, according to data compiled by Bloomberg New Energy Finance. The deal bucks the trend in recent years of buyers pushing for shorter and more flexible contracts as new export projects started up, creating an abundance of LNG and easing concerns that customers need to lock in long-term supply.

The shift comes after new clean-air policies in China powered a surge in demand. That stretched the nation’s supply to its limits and left some citizens in the cold this past winter, forcing the nation’s energy companies to reassess their supply situation, said Maggie Kuang, a Singapore-based BNEF analyst.

“For countries like China that clearly see long-term demand for LNG imports growing, you would see them signing more long-term deals,” Kuang said. “They need to ensure supply security.”

China’s LNG imports held below 20mn tonnes annually from 2013 to 2015, leaving the country’s contracted long-term supplies of more than 40mn tonnes a year through the next decade looking more than sufficient. But imports surged to 38mn tonnes last year amid the push by President Xi Jinping’s government to replace coal with natural gas.

And the growth is far from over. Analysts at Sanford C Bernstein & Co expect China’s LNG imports to rise to 115mn tonnes by 2030 and for the country to overtake the US as the world’s largest gas user between 2040 and 2050.