China's biggest refiner Sinopec is preparing to ink a 20-year LNG supply deal with Cheniere Energy if the U.S.-China trade conflict gets resolved as many in the energy market anticipate, Reuters reports, citing unnamed sources close to the deal.
"Without the trade spat, the deal should have been signed some time ago," one of the sources said. Both said the deal would be for almost 2 million tons of LNG annually, beginning in 2023. This will be a sizeable portion of the total U.S. liquefied natural gas capacity as of end-2019. The Energy Information Administration last December forecast this would reach 8.9 million tons.
According to Reuters calculations, the size of the deal based on January prices for U.S. LNG coming into China would come in at US$16 billion.
Last month, Reuters reported Chinese LNG imports had hit another high in January amid peak seasonal demand, at 6.55 million tons. However, the winter turned out milder than would justify this massive intake of LNG and many importers were stranded with more LNG than they can't sell.
"When people see these numbers, they think Chinese demand is up ... but actually it is causing a headache (for importers) as (they) have overbought and can't find demand to absorb the cargoes," one energy industry source told Reuters at the time.
If the U.S.-China trade war ends with a mutually agreeable deal, this would mean a lot not just for established exporters such as Cheniere, but for newcomers on the market who need funding to build their export terminals. To get it from banks, however, they need long-term delivery commitments and these have become hard to come by amid the trade dispute.
Besides the planned projects, there are three more due to come on stream by the end of this year: the Cameron LNG in Louisiana, the Freeport LNG in Texas, and the Elba Island LNG plant.
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. More
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Comments
Disagree on one point: It's not that the deal will be signed if the trade conflict is resolved. Instead, it's one of the major issues that will resolve the conflict.