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Cheniere HoA may signal US-China LNG trade revival

Guangdong utility Foran has agreed to non-binding deal to delivery of cargoes, to add to the annual volumes it agreed to purchase from BP in July

The first tentative LNG agreement between the US and China since their bruising trade war disrupted deliveries may be an early sign that Chinese buyers are taking a second look at competitively priced American shipments.

Foran Energy Group, an independent utility in southern China’s Guangdong province, signed a non-binding deal known as heads of agreement (HoA) with Cheniere’s LNG marketing division to buy 26 cargoes over a five-year period from 2021-25. The cargoes will be priced against the US Henry Hub benchmark.

The agreement—signed at the third China International Import Expo (CIIE) in Shanghai on Friday—comes after Shenzhen Stock Exchange-listed Foran signed a HoA with BP in July to buy up to 600,000t/yr of regasified LNG.

26 – Cargoes specified by the HoA for delivery 2021-25

Cheniere will work over the next few months to convert the HoA into a binding SPA, Jia Ying, chief representative of Cheniere’s Beijing office, told Petroleum Economist on Sunday at the ninth China International Oil and Gas Trade Congress, a supplementary event to the CIIE.

Jia declined to comment on the possibility that Cheniere could clinch a SPA with Foran this year, but a binding deal would potentially be the first US-China LNG deal since Cheniere sealed two SPAs with state-owned PetroChina in February 2018. PetroChina’s parent, CNPC, is a foundation customer for the third train of Cheniere’s Corpus Christi LNG project in Texas, which is expected to complete commissioning in the first quarter of 2021.

The provisional agreement comes amid a pickup in US LNG exports to China this year after Washington and Beijing paused their tariff war with the signing of the phase-one trade agreement in January. China imported 1.42mn t of US LNG worth $416mn in the first nine months of this year, up from just 258,955t in 2019 but still far off the record 2.15mn t received in 2018, according to figures from China Customs.

Cheniere sent nine LNG cargoes to China between March and August of this year, US Department of Energy figures show. The company has delivered more than 1,100 shipments to date since its debut cargo departed the Sabine Pass project in Louisiana in February 2016, according to a pre-recorded presentation by chief commercial officer Anatol Feygin shown at the Shanghai event.

Pent-up demand

In March, China introduced a tariff waiver programme that included LNG in a bid to increase imports to help it meet purchase targets under the phase-one trade deal—paving the way for a resumption in US flows to China the next month.

This contrasts with previous years, when the majority of US LNG exports to China were delivered during winter months, and suggests there is some level of pent-up demand for American volumes from Chinese buyers.

The inclusion of Henry Hub indexation in Foran’s HoA with Cheniere points to a growing willingness from Chinese buyers to consider spot market-based alternatives

One of the buyers was Foran, as the company revealed a Hong Kong-based subsidiary started buying LNG from Cheniere in August. The subsidiary had received $9.32mn of LNG from Cheniere by the end of September, making up 1.71pc of its total gas procurement over the first nine months.

The inclusion of Henry Hub indexation in Foran’s HoA with Cheniere points to a growing willingness from Chinese buyers to consider spot market-based alternatives to the longstanding oil price linkage and could help foster interest among other budding Chinese importers to consider using Henry Hub or JKM as well for short-term contracts.

Foran’s July HoA with BP was reportedly linked to the JKM price, which until recently had languished at record low levels due to demand destruction amid the global Covid-19 pandemic. A four-year SPA between Diamond Gas International, a Singapore-based subsidiary of Japan’s Mitsubishi, and Guangdong Energy in July was also agreed on a JKM basis.

 

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