China's Shandong Order Group signs JKM-linked LNG deal with Glencore

Shandong Order Group, a Chinese second-tier gas company, has signed a medium-term LNG supply agreement with Glencore Singapore, linking pricing to the Platts JKM.

The agreement, signed on March 25 in Beijing, represents a strategic move to secure clean energy resources amid China's efforts to reduce carbon emissions, the Chinese company said on its official website on March 26, without disclosing further details of the deal.

Trade sources said the LNG contract involves the supply of three cargoes per year over a three-year period on an ex-ship (DES) basis, with the contract price set at a discount to the Platts JKM. Platts is part of S&P Global Commodity Insights.

Shandong Order Group and Glencore Singapore did not immediately respond to requests for comment on the matter.

In 2024, the two companies engaged in trades, with Shandong Order Group participating in spot trading activity.

The JKM, a key Asian LNG benchmark, has increasingly been adopted as a reference in Chinese term deals in recent years. Notable examples include a deal signed by China National Offshore Oil Corp. (CNOOC) and Abu Dhabi National Oil Co. (ADNOC) in late 2023 for 12 cargoes to be delivered over the 2024-25, priced at a JKM discount.

Additionally, JKM was incorporated into China's downstream city-gas pricing mechanism over 2022-24, with a portion of non-residential gas volumes linked to JKM prices.

"It is easier to hedge with JKM," a Chinese trade source said regarding the contract, highlighting the advantages of using JKM in risk management strategies.

Platts assessed the May JKM at $12.618/MMBtu on April 1, reflecting current market dynamics.

Prior to this deal, Glencore Singapore signed a medium-term LNG supply contract with Australia's Santos in September 2024 for 19 cargoes or up to 500,000 mt/year of LNG over a period of three years plus one quarter. This contract is oil-indexed and is set to commence in the fourth quarter of 2025.

The deal with Shandong Order Group aligns with Glencore's broader strategy to penetrate China's LNG market through partnerships with second-tier gas companies, which are increasingly sourcing imported LNG through LNG terminals operated by state-owned infrastructure giant PipeChina.

In addition to Shandong Order Group, Glencore Singapore also signed a medium- to long-term LNG sales and purchase agreement with another Chinese second-tier gas company, Shenzhen Energy Group, in July 2024. This agreement involves the supply of about 500,000 mt/year over a period of 5-10 years, with pricing linked to Henry Hub and delivery expected to begin in late 2026 or early 2027.

Based in Shandong province, Shandong Order Group primarily distributes city gas. Its business encompasses gas pipeline construction, LNG trading, distributed energy, and vehicle gas. According to local media, its partnership with Glencore marks a strategic shift toward securing direct LNG imports, reducing reliance on domestic suppliers such as state-owned PetroChina and Sinopec.