Cheniere Energy Inc. has agreed to supply liquefied natural gas (LNG) to Chinese utility ENN Natural Gas Co. Ltd. for 13 years beginning in July 2022.
Under the sales and purchase agreement (SPA), subsidiary ENN LNG Pte Ltd. would purchase 900,000 metric tons annually on a free-on-board basis. ENN would pay prices indexed to Henry Hub, plus a fixed liquefaction fee.
It is the first long-term deal inked between a Chinese buyer and American LNG producer in years amid ongoing trade tensions. Monday’s announcement further demonstrates how buyers have returned to the table to negotiate for longer-term supplies as global natural gas prices have skyrocketed and created volatility on the spot market.
“This SPA underscores the strength of the global LNG market today, particularly in China, and highlights Cheniere’s role as a leading global LNG supplier, tailoring solutions to help meet the long-term energy needs and environmental goals of our customers,” said Cheniere CEO Jack Fusco.
As the LNG market has tightened in a reversal from the last two years, when a glut of supplies made it easy to find cheap spot cargoes, more long-term supply deals have been inked. Globally, SPAs for more than 53 million metric tons (mmt) have been signed so far this year. That’s compared to just 16 mmt in all of 2020, according to Rystad Energy.
Cheniere also said that the SPA is another step toward expanding its Corpus Christi LNG terminal in South Texas, which it expects to sanction next year.
“The SPA also further advances Cheniere’s commercial momentum and marks another milestone in our efforts to contract our LNG capacity on a long-term basis in anticipation of a final investment decision of Corpus Christi Stage 3, which we expect will occur next year,” Fusco said.
With LNG and other commodities in short supply, China has pledged to step-up the country’s buying and production of natural gas to avoid power cuts this winter and in the future.
China — the world’s largest energy consumer — saw natural gas account for about 8% of consumption in 2019, but the fuel continues to take up a larger share of the nation’s energy mix.
A rebound from Covid-19, coal-to-gas switching and policymaking have helped boost natural gas consumption this year. China is aiming to be net-zero by 2060.
“China is making great efforts to achieve the goal of peak carbon emissions and carbon neutrality, boosting the reform of the natural gas market, and accelerating the structural adjustment of energy consumption,” said ENN Chairman Wang Yusuo.
China was the world’s second largest LNG importer in 2020. It has driven overall demand for the super-chilled fuel in Asia as domestic production has lagged. It is now on track to become the world’s largest LNG import market.
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