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Sinopec and Sinochem sign LNG import contracts with US producers
Heavy coal users in Asia fuel surge in demand as they transition to cleaner energy
Michael Marray 17 Nov 2021

Liquefied natural gas exporter Venture Global LNG has signed the largest-ever LNG supply deal by a US company, as China continues to manage its growing demand for imported fuel for power generation.

China Petroleum & Chemical Corp (Sinopec) in early November signed two 20-year sales and purchase agreements (SPAs) for the supply of a total of four million tonnes per year (tpy) of LNG from Venture Global’s LNG export facility in Plaquemines, Louisiana.

Meanwhile, Sinopec subsidiary Unipec also agreed to purchase a total of 3.5 million tonnes of LNG from Venture Global’s Calcasieu Pass LNG facility in Cameron Parish, Louisiana.

“Venture Global is proud to enter into this new and exciting long-term partnership with Sinopec, and soon become the largest US LNG exporter to China,” says Mike Sabel, the US company's chief executive officer.

Sinopec president Ma Yongsheng adds: “We are committed to building capacity in providing clean energy and meeting people's aspiration for better life. The signing of this LNG SPA reflects the shared mission of Sinopec and Venture Global in promoting the global energy transition and is of significance in achieving carbon-emission peak and neutrality goals.”

Capacity expansion

Separately, Sinochem Group signed an SPA with Cheniere Marketing, a subsidiary of Texas-based Cheniere Energy. Under the deal, which has a term of 17.5 years, the Chinese firm will purchase an initial volume of 0.9 million tpy of LNG beginning in July 2022, which increases to 1.8 million tpy. The purchase price is indexed to the Henry Hub price, plus a fixed liquefaction fee.

According to Cheniere, the SPA confirms the strength of the global LNG market and the global call for investment in additional LNG capacity, including the company's Corpus Christi Stage 3 project in Texas.

The Corpus Christi Stage 3 project is being developed to include up to seven mid-scale liquefaction trains with a total expected nominal production capacity of over 10 million tpy. It has received all necessary regulatory approvals.

A recent report from GlobalData says China dominates LNG regasification capacity additions and capex spending in Asia. China is expected to add new-build LNG regasification capacity additions of 4,380 billion cubic feet (ft3) by 2025, while the expansion projects account for the rest with 1,576 billion ft3.

China will contribute 36% of the total Asian LNG regasification capacity additions between 2021 and 2025.

According to the report, among the new-build and expansion projects that are likely to start operations in China during the forecast period, Tangshan II is the largest with a capacity of 584.4 billion ft3. Yantai I and Zhoushan III are the other major projects with capacities of 487 billion ft3 and 340.9 billion ft3, respectively.

Transitioning from coal

India is the second-highest contributor to the global LNG regasification capacity additions with new-build LNG regasification capacity additions of 3,062 billion ft3 by 2025, GlobalData says. Expansion projects account for the rest of the capacity additions with 365 billion ft3 by 2025. Kakinada GBS Floating in Andhra Pradesh leads LNG regasification capacity additions in the country with a capacity of 350.6 billion ft3 by 2025.

Pakistan is expected to be the third largest contributor to the LNG regasification capacity additions in India with 1,752 billion ft3. Of these, new-build capacity additions account for 1,697 billion ft3. Among the new-build projects in the country, the largest is the one in Port Qasin with a capacity of 438 billion ft3. It is expected to start operations in 2023.

Asian countries that are heavy users of coal will be the key driver of LNG demand growth as they transition to cleaner energy. They include China, India and Indonesia.

Morgan Stanley says in a recent report that LNG demand is expected to rise by 25 to 50% by 2030, and at least 73 million tonnes per annum (mtpa) of new projects are needed to meet that demand. This will require an additional US$65 billion of new projects, on top of the US$200 billion of projects already under construction.

Asian spot LNG prices hit a record above US$56 per 1 MMBtu (million British thermal unit) earlier this month as surging demand ahead of the Northern Hemisphere winter spurred by an economic rebound from the pandemic outstripped supply.

Prices could remain elevated in the coming years because the LNG industry is taking a cautous approach to new capital spending.

Asia is also a major destination for LNG from Qatar, and both Korean and Chinese shipyards are signing big orders to build new LNG carriers.

More vessels

On November 8 QatarEnergy placed the first set of LNG carrier orders with Korean shipyards, four from Daewoo Shipbuilding & Marine Engineering (DSME) and two from Samsung Heavy Industries (SHI).

QatarEnergy has options with the two Korean shipyards under reservation of shipyard capacity agreements signed in May 2020. It plans more orders in the near future.

DSME and SHI have already built 23 Q-Flex and 14 Q-Max LNG vessels for Qatar as part of a previous LNG expansion project.

The huge North Field expansion projects will increase Qatar's LNG production capacity from 77 million tpy to 126 million tpy by 2027.

QatarEnergy’s LNG carrier fleet programme is the largest of its kind in the LNG industry, and is designed to meet the shipping requirements of the company's LNG expansion projects, as well as replacing part of Qatar's existing LNG fleet.

In 2020 QatarEnergy reserved capacity at Korean and Chinese yards in order to ensure it will have the capacity to meet its fast-increasing shipping requirements. An agreement signed with Hudong-Zhonghua, a unit of China State Shipbuilding Corp, could eventually involve up to 16 174,000-cubic-metre LNG carriers costing US$3 billion. Last month the programme was initiated with an order for four vessels.

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