China's Zhejiang Hangjiaxin, Russia's Novatek sign framework agreement for long-term LNG supply

China's Zhejiang Hangjiaxin Clean Energy has signed a framework agreement with Russian energy company Novatek's Asian subsidiary for a long-term LNG supply deal, the Chinese city gas distributor said Dec. 2.

Under the agreement, Novatek will ship LNG cargoes to the Hibiki LNG receiving terminal owned by Saibu Gas in Kyushu, Japan, and Hangjiaxin will then ship the LNG to its Jiaxing LNG terminal in eastern Zhejiang province using small and medium-sized LNG vessels, Hangjiaxin said in an announcement on its social media platform.

This innovative trade model opens up new opportunities for using small and medium-sized LNG vessels to supply the Jiaxing LNG terminal, Hangjiaxin said.

Further details on volume, price and delivery periods were not available at the framework agreement stage, market sources said.

The business model is notable for its use of the Japanese LNG terminal for break bulking, underscoring the downstream development of the industry in North Asia as well as the use of Japanese LNG infrastructure to supply coastal China, market sources said.

Zhejiang Hangjiaxin Clean Energy is a 51:49 joint venture between local government-owned city gas distributors Jiaxin Gas and Hangzhou Gas, which will invest in and operate the 1 million mt/year Jiaxing LNG terminal, which is nearing completion and is scheduled to start operations in the first quarter of 2022, according to a Zhejiang provincial government statement released Nov. 10. The project comprises two 100,000 cu m LNG storage tanks, two docks capable of berthing 30,000 dwt and 5,000 dwt LNG vessels, respectively, and 53.5 kilometers of pipeline.

The relatively smaller capacity of the terminal and its vessel berths means it can only be supplied by small-scale LNG vessels.

With a total investment of Yuan 2.4 billion, the Jiaxing LNG terminal will operate as an emergency peak shaving project, Hangjiaxin said in a separate news release. It is designed to meet peak season gas demand and will be part of a three-tier natural gas reserve system in Zhejiang province under which gas inventories are released under different demand conditions, the company added. The project is designed to supply the cities of Jiaxing and Hangzhou and some regions of northern Zhejiang.

China's second-tier gas suppliers have been increasingly active in the LNG market in recent years, reflecting the gradual liberalization of the country's natural gas market. The deals signed between Chinese city gas distributors and overseas suppliers also signal a wider effort by non-national oil companies to secure term contracts.