China’s imports of American natural gas will more than double after state-run companies signed three long-term supply deals with Venture Global LNG, as Beijing looks to the US to help secure its energy future.
Oil and gas giant Sinopec has agreed two deals to buy at least 4m tonnes a year of liquefied natural gas from Venture Global’s proposed new export project in Plaquemines Parish, Louisiana, which is due to come online in mid-2023.
Venture Global also revealed details of a third agreement with Unipec, Sinopec’s trading arm, which will involve shipments of 1m tonnes a year from the US group’s Calcasieu LNG plant, which is due to start initial exports later this year.
The LNG deals come amid mounting trade and security tensions between Washington and Beijing and as soaring energy prices underscore the need for China’s energy-hungry economy to lock in supply.
Under the arrangements Venture Global could eventually ship 5m tonnes a year of the super-chilled fuel to China from its new plants. Total US exports from the US to China last year were slightly more than 4m tonnes a year, according to the Energy Information Administration.
China’s power crunch, which has led both to industrial power rationing and residential blackouts in some provinces, has hit the country’s economic growth and sparked a scramble to secure fuel supplies.
At the same time, surging global natural gas prices have injected fresh momentum into efforts to build a new wave of US LNG export facilities as companies try to capitalise on a mismatch between supply and demand.
LNG exports from the US lower mainland began in 2016, as developers capitalised on soaring supplies of cheap shale gas.
US governments have touted the strategic benefits of the “molecules of freedom”, in particular arguing that American fuel could help free Europe from a dependence on Russian gas — although buyers in China and Japan have outbid those in Europe for American natural gas supplies in recent months.
The impact of the pandemic last year and a quickening energy transition left some analysts wondering if an era of US energy export expansion had come to an end. But soaring global natural gas prices in recent months have brought an abrupt reversal in sentiment.
As many as five new projects — including Venture Global’s Louisiana facility — could be approved over the next few years, enabling a near doubling of US LNG export capacity, according to consultancy Enverus.
Analysts said the deals pointed to China’s growing significance to the American energy sector.
“China is absolutely key to global LNG market growth,” said Frank Harris, head of global LNG consulting at Wood Mackenzie. “If Chinese buyers are now ready to sign long-term US deals again, it’s hugely significant for US LNG players in terms of supporting development of new capacity.”
Venture Global’s deals with Sinopec emerged in a letter posted this week on the US Department of Energy’s website, in which the company said the agreements were sealed on September 1.
The first Sinopec deal would supply 2.8m tonnes a year of LNG and the second 1.2m tonnes a year, both over 20 years. Venture Global declined to comment. The document did not mention pricing or when the supplies would start.
Venture Global’s Plaquemines facility would begin phased operations from mid-2023 and be fully online a year later, the company said in its letter. It has also secured a long-term 4m tonnes-a-year supply deal for exports from Plaquemines with Poland’s PGNiG and a 1m tonnes-a-year agreement with France’s EDF.
News of Venture Global’s deal with Sinopec follows an announcement on Monday from Cheniere Energy, a US natural gas producer, that it had signed a 13-year agreement to sell gas to a subsidiary of ENN Natural Gas, a Chinese gas distributor.
China’s 10.6m tonnes of natural gas imports in September were 23 per cent higher than the same month the previous year as the country scrambled to secure supplies for the winter. Some provinces are considering building more natural gas power plants.
The energy crisis in the Asian country has also led authorities to demand an expansion of coal production, as China is still mostly reliant on the commodity for its energy needs.
On Tuesday the Chinese government’s central planning department said it was considering intervening to lower coal prices as they continued to drift upwards. The high prices mean it has not been financially viable for some generators to run coal-fired power plants.
Chinese coal prices tumbled on the news. Thermal coal futures trading on the Zhengzhou Commodity Exchange, which have hit record levels in recent weeks, fell the maximum 8 per cent on Wednesday for a second consecutive day.
But natural gas has become more attractive in light of China’s climate pledges and “dual control” power strategy aimed at lowering energy consumption and intensity — or the amount of power used per percentage of gross domestic product.
Provinces have been racing to meet strict energy consumption targets under the policy and in some cases have restricted financing to power projects that entail high energy consumption.