Russia's Sakhalin Energy offers 12 term LNG cargoes a year to Chinese buyers

Russia's Sakhalin Energy is offering 12 LNG cargoes a year to Chinese buyers for a term period of three to five years starting August, industry sources said.

The price of the tender, which closes March 5, is linked to Brent crude, according to sources.

Platts assessed the front-month ICE Brent futures contract up $1.40/b at $83.37/b at the Asian close on Feb. 22, S&P Global Commodity Insights data showed.

Sakhalin Energy was not immediately available for a comment when reached out by S&P Global.

The company sells LNG cargoes produced in the Sakhalin 2 project. In 2023, 10.37 million mt of LNG was exported through the project -- 59.5% flowed to Japan, 24.8% to China and 15.7% to South Korea, S&P Global data showed.

Despite being the largest importer of cargoes from Sakhalin, Japanese trading houses and utility sources said they were not invited to bid for the tender.

Japanese utilities' term contract volumes amount to about 5 million mt in 2024, according to data from the Japan Organization for Metals and Energy Security.

Sakhalin Energy also sells one to two spot cargoes a month, with China being the main destination, market sources said.

Chinese sources expect the oil slope to trade below 12% due to possible restrictions on Russian-origin cargoes. Buyers may also target a slope as low as 11%-11.5%, as JKM prices are likely to soften.

Platts assessed the April JKM at $8.23/MMBtu and the JKM Balance April next-day derivatives at $8.15/MMBtu on Feb. 22, S&P Global data showed.

Price reviews

Sakhalin Energy is reviewing prices for shipments from April onwards, Japanese buyers said.

Japanese and South Korean buyers are securing Sakhalin 2 cargoes at 13%-13.5% slopes relative to customs-cleared crude oil rates set by Japan's finance ministry under the current long-term contracts, while Sakhalin Energy offers at 14% or higher slopes, according to market sources.

Japanese buyers said they were unlikely to reach an agreement with Sakhalin Energy before the start of the term.

"There's still a gap [between Sakhalin Energy's offer and our desired level]," one of the buyers said.

"I haven't seen the negotiations completed before the term starts. It usually takes one to two more years," another buyer said.

List of Sakhalin 2's LNG supply contracts:

Source: Japan Organization for Metals and Energy Security, updated by S&P Global Commodity Insights