QatarEnergy-Sinopec's long-term LNG contract likely priced around 12.7% slope to oil

The LNG sales and purchase agreement signed between QatarEnergy and China Petrochemical Corp., or Sinopec, was likely priced around 12.7% slope to crude oil, with flexibility for Sinopec to receive LNG cargoes at its terminals in China, market sources said Nov. 9.

LNG will be delivered to Sinopec's receiving terminals in China for the tenure of the contract, a source familiar with the matter told S&P Global Commodity Insights.

Sinopec and QatarEnergy did not immediately respond to queries sent by S&P Global seeking comments.

Sinopec currently operates five LNG terminals in China and more terminals are being proposed. The number of terminals that Sinopec can receive LNG marks a degree of flexibility in the long-term LNG contracts that have been announced by QatarEnergy.

The LNG contracts between Qatar Energy and Shell, ENI, TotalEnergies mention individual terminals in Europe where LNG is expected to be delivered, according to statements by QatarEnergy.

The LNG contracts between Qatar Energy and Shell, ENI and TotalEnergies likely included exposure to natural gas hub pricing, a sign of evolving European LNG markets, S&P Global reported earlier.

A market source from the Middle East said that the LNG delivered as part of the contract will have to be delivered within China.

"The two sides also signed a long-term sales and purchase agreement for the delivery of 3 million tons per annum of LNG from the NFS project to Sinopec's receiving terminals in China over a span of 27 years," QatarEnergy said on Nov. 4.

The partnership includes QatarEnergy transferring a 5% interest to Sinopec in a joint venture with 6 million tons of annual LNG production capacity in the North Field South project.

Market sources said the start date for the contract will align with the NFS project coming online.

A forward-looking approach

The Nov. 4 announcement was the second of its kind with Sinopec, QatarEnergy said in the statement, following a similar deal being signed in April 2022 which marked Sinopec's entry as a shareholder in North Field East joint venture companies.

The North Field East expansion project will have four trains for a total of 32 million mt/year of LNG, expected to be online by 2026 and North Field South will be expanded by two trains for a total of 16 million mt/year, starting 2027.

Sinopec's recent long-term contract agreement with Qatar suggests a forward-looking approach aimed at bolstering energy supply stability by potentially preparing for future storage capacity -- indicating their bullish outlook on future demand or an expectation of improved efficiency in the spot market, sources said.

Market participants said that Sinopec's strategic considerations may include securing sufficient volume for upcoming storage expansion while at the same time exploring the possibility of exploring opportunities in the spot market, thus optimizing their position in the energy landscape.

Platts assessed JKM, the benchmark price for LNG cargoes delivered to Northeast Asia, at $15.621/MMBtu on Nov. 8 for December, according to S&P Global data.