Huge Sinopec LNG contract has repercussions for Europe

Last week Sinopec signed a SPA for one of the largest and definitely longest LNG contract – 4 mtpa over 27 years.

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This new contract should not be seen as a surprise, this is the 30th contract signed since early January 2021. Most contracts have been signed since July 2021, when Asian (JKM) and European spot prices started to increase.

-Why is China signing so many LT contracts?

China used to be quite dependent on spot LNG. But with the recent spot price increase, they prefer to contract LNG mostly on a LT basis either at oil indexed or HH++ basis.

The share of non-NOCs in LNG trading has also increased significantly reflecting the progress in liberalisation (access to LNG terminals and pipelines)

China also has – unlike Europe – a LT view on natural gas. But that does not mean that China is over-contracted over the LT (see chart)

However, they could now redirect some term LNG to their market if their gas demand grows again. Not such good news for Europe.
Given the multiplicity of players with various strategies, it will be imho increasingly difficult to talk about “China’s LNG strategy” as if there was one player.

• What is special about this new contract?

It starts in 2026, and will be supplied from the NFE project (unlike other deals signed by Chinese players with Qatar recently which started before)

While there have been many contracts signed with US projects, this signals a rebalancing of risks with more supply diversity (remember that the relationship with Australia has also been tense on the coal side).

Source: Anne-Sophie Corbeau