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Exxon has inked a contract with Chinese Zhejiang Energy for the supply of 1 million tons of liquefied natural gas annually, the supermajor said, adding the Chinese company will build a new import terminal for the shipments.
Reuters reports that the terminal Zhejiang Energy will build will have a capacity to hold 3 million tons of LNG with a US$1.34 billion price tag. Sinopec, China’s largest refiner, will be partner of Zhejiang in the project.
The deal is significant first because it may go a certain way towards quenching concern that the trade dispute between Washington and Beijing would affect LNG trade just as China’s demand for the superchilled fuel is rising steadily.
However, as one analyst told Reuters, the deal is not part of the bilateral negotiations that have recently raised hopes that the trade war saga could end in a mutually beneficial deal.
“The gas supplies to the Zhejiang firm will come from Exxon’s portfolio production outside the U.S.,” Chen Zhu said, adding that the terminal will begin operations sometime in 2022 or 2023. The analyst noted that Exxon already has two LNG supply deals with Chinese companies, and not just any companies: the supermajor will supply LNG to Sinopec and CNPC.
Secondly, it is a long-term deal—20 years—which is even better news for other U.S. companies betting on LNG: long-term supply commitments are what they all need to secure the funding needed for the construction of the liquefaction facilities, which normally cost billions of dollars.
Exxon is one of the largest global players in liquefied natural gas, holding stakes in LNG projects that combined have a total capacity of some 65 million tons of the fuel annually. This includes the Papua New Guinea LNG project where Exxon is the majority partner and which specifically targets the Asian market—the driver of future global LNG demand.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.