Cheniere Energy Inc, the only exporter of US natural gas from shale fields, signed the first long-term deal to supply the fuel to China. Cheniere shares jumped as much as 7.2%.
The agreement commits Cheniere to supply 1.2mn metric tonnes a year to China National Petroleum Corp through 2043, according to a statement released by the Houston-based exporter on Friday. State-controlled CNPC agreed to pay a price linked to the US benchmark for the fuel, plus a fixed fee, according to the statement.
The contract will help underpin an expansion of the gas export terminal in the Texas port city of Corpus Christi, the first phase of which may start later this year or 2019. It will be Cheniere’s second facility, further positioning America as a global gas supplier vying for market share with LNG giants Qatar and Australia.
LNG has been a facet of President Donald Trump’s goal of US energy dominance, while China’s demand for gas has surged amid economic expansion and government policies to shift to cleaner fuels from coal and oil.
“It’s about time we signed up some term business with China given how much growth they’ve had historically” and how much gas demand is poised to climb there, Cheniere chief financial officer Michael Wortley said in a phone interview. “If you’re growing at a rate like a country like China is growing, you want certainty.”
China is likely to become the leading LNG importer in the world within five years, according to Bloomberg Intelligence. Part of that shift is due to regulatory changes: President Xi Jinping has mandated all homes and businesses must remove coal stoves and replace them with gas heating systems.
CNPC didn’t immediately respond to a request for comment.
“China is a big market for gas and their gas imports are growing,” Anastacia Dialynas, analyst at Bloomberg New Energy Finance, said by telephone. China is a market many producers have hungrily chased, so their decision to sign with Cheniere “carries a lot of weight.”
The fuel switch elevated Asian LNG prices this winter as frigid temperatures set upon the region, boosting demand. The average spot price in Japan in January rose to $11 per million British thermal units, a three-year high, as countries in the region entered a bidding war to receive the supply they needed.
In 2017 alone, demand for the fuel in China jumped 46%, according to Energy Aspects Ltd. The country has already imported the third-most cargoes from Cheniere since the Sabine Pass facility started operation, but those 34 were spot cargoes, not part of a long term supply agreement. State-controlled CNPC signed a non-binding memorandum of understanding with Cheniere back in November. This deal builds upon that agreement, chief executive officer Jack Fusco said in the statement.
Deals like the CNPC agreement may become increasingly scarce in an environment where buyers are hesitant to ink long-term contracts, given a worldwide LNG supply glut.
The CNPC agreement marks Cheniere’s second major contract this year. Last month, the company agreed to supply LNG to the biggest independent trader of the fuel, Trafigura Group Pte Ltd.
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