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China contracts more LNG


Partners in Australia Pacific LNG (APLNG) have announced the proposed sale of a further 4.5bcmpa (3.3mmtepa) of LNG to be supplied to Sinopec. If the Heads of Agreement is firmed up, that would take Sinopec’s total LNG purchase commitments from APLNG to 10.3bcmpa (7.6mmtepa). As part of the deal, Sinopec is to increase its equity position in APLNG from 15% to 25%.

China has been increasing its contracted LNG purchase commitments and these now stand at 51.4bcmpa (37.8mmtepa) by 2015 rising to 54.1bcmpa (39.8mmtep) by 2017, according to our estimates.

The increase in contracted supply is rapidly closing the gap on our current estimates for likely installed LNG regas capacity in China. However, there are many proposed new regas terminals which we do not include in our firm schedule and we do not think that China will have a problem increasing regas capacity as necessary to take its committed LNG supplies.

In our forward estimates for global LNG availability by region, we assume that China brings in LNG at its maximum import capacity, buying in the spot market whatever is not covered by firm supply. The closer firm supply is to capacity, the more likely it is that China will indeed import all the LNG we forecast, reducing availability to other markets, including Europe.

While this contract will in our view help to tighten the European LNG market marginally against our current estimates, it also confirms that China continues to firm up its import requirements. And although we believe that China would be a willing purchaser of Russian gas, it is price sensitive and on our current estimates, which await translation of the new five-year plan into specific targets for gas, China has its gas needs covered up to 2015 (and probably for at least another 2-3 years thereafter).

Colin Smith
VTB Capital analyst

China, Europe

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