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China consortium signs 27-month deal for CNOOC’s LNG terminal access

A consortium of China’s state-owned Zhenhua Oil, along with private gas companies Shengli Oilfield Tianyuan Gas Storage and Sanhe Penghao Gas, signed a 27-month LNG terminal access agreement offered by state-owned CNOOC on the Shanghai Petroleum and Gas Exchange, a source with Zhenhua Oil said.

The deal gives the third-party users access to nine of CNOOC’s LNG import terminals in coastal China, and is the first such agreement signed after CNOOC offered long-term and short-term LNG terminal access on the SHPGX platform in March.

The initiative is part of China’s efforts to liberalize its gas markets and allow more independent buyers to access the international gas market, which was previously limited to state-run national oil companies. It also comes amid efforts to implement gas market reforms and set up an integrated national pipeline company.

“We and two partners have jointly taken the 27-month access agreement, totaling around nine LNG cargoes, from CNOOC,” the Zhenhua source said, adding that they will take around 40% of the total volume while the remaining will be shared equally by the two partners at 30% each.

In return, the third-party consortium will have to procure part of the LNG cargoes from CNOOC’s portfolio of long-term LNG contracts.

The 27-month LNG terminal access agreement contains four of CNOOC’s contracted cargoes that would be delivered first, to be followed by five-to-six LNG spot cargoes that can be sourced by the third-party users themselves after lifting CNOOC’s long-term contract cargoes, the Zhenhua source and other market sources said.

The consortium can either procure the additional cargoes directly from the international market or they can ask CNOOC to purchase them on its behalf, according to the agreement posted on SHPGX.

Under the agreement, the third-party users can deliver their cargoes at CNOOC’s nine coastal LNG terminals, with roughly one cargo every three months. However, buyers would still need to pay an operation fee of more than Yuan 0.2/cubic meter, according to market sources.

TERMINAL ACCESS AGREEMENT

Besides the 27-month mid-term LNG terminal access agreement, CNOOC is also offering two types of LNG terminal access agreements — short and long term — on the SHPGX.

The short-term agreement has two components — one for 18 months and another for 12 months. The 18-month component contains three of CNOOC’s contracted LNG cargoes and three LNG spot cargoes. The 12-month agreement contains two of CNOOC’s contracted cargoes and two LNG spot cargoes.

For the long-term LNG terminal access agreement, the third-party users are required to take in a minimum of four LNG cargoes per annum over 10 years. Upon allocation, half of the volumes will come from CNOOC’s long-term contract portfolio, while the other half will give the user the flexibility of direct procurement in the international market, S&P Global Platts reported earlier.

“With such arrangements, third-party users will absorb some of CNOOC’s term volumes,” an end-user said earlier, adding, “CNOOC could optimize and bring down overall portfolio costs by replacing those term cargoes with cheaper spot purchases.”

In the current market, spot cargoes delivered into North Asia are competitive with term prices. The S&P Global Platts JKM assessment for July cargoes was assessed at $4.263/MMBtu on Tuesday.

“We hope to share the losses of the first four cargoes that would come from CNOOC’s long-term contract portfolio … the cost of these cargoes is too high, as they are priced at a premium to 15% of JCC (Japan Crude Cocktail),” the company source explained.

Previously, CNOOC sold access to its two terminals through auctions held on the SHPGX over September-October.

The first auction on September 20 involved an import slot at the company’s Yuedong LNG terminal for a cargo to be discharged from October 22-26. The import access was awarded to Zhenhua Oil and a private company, Longkou Shenton Energy, Platts had reported.

The second auction later was for an import slot at CNOOC’s Zhejiang LNG terminal for a November 24-30 discharge, which was heard awarded to Zhejiang’s Panergy, according to sources.

China has been promoting the liberalization of gas pipelines, storage facilities and LNG terminals to allow third-party access since 2014. The government recently published an updated policy which signals its determination of further opening up and developing the gas market.
Source: Platts

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