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BP signs long-term LNG contract with China's Shenzhen Energy

The National logo The National 26/11/2022 Reuters
A Norwegian-flagged regasification ship for liquified natural gas. Getty Images © Sean Gallup A Norwegian-flagged regasification ship for liquified natural gas. Getty Images

China's Shenzhen Energy Group has signed a long-term agreement with oil major BP to buy liquefied natural gas, aiming to lock in supplies with gas-fired power generation poised to surge in the world's second-largest economy.

The agreement is Shenzhen Energy's first long-term international LNG contract and its first long-term contract with BP Singapore, the Chinese company said in a statement on Friday.

The statement did not specify details of the agreement, including the duration of the contract.

"To meet the demand of Guangdong province and Shenzhen city for energy security and stability, Shenzhen Energy Group is making efforts to promote the construction of gas power plants," it read.

"It is estimated that around 2024, as the gas power plants go into operation, the group's total demand for natural gas will significantly rise."

China's LNG importers are widely expected this winter to avoid the spot market, where prices have risen sharply, relying instead on Russian supplies and long-term contracted volumes.

Last week, QatarEnergy signed a 27-year deal to supply China Petroleum & Chemical Corporation (Sinopec) with 4 million tons per annum (mtpa) of LNG.

The contracted LNG volumes will be supplied from QatarEnergy’s North Filed East LNG expansion project and will be delivered to Sinopec’s terminals in China, Qatar’s state energy company said in a statement.

The current strains on gas supply have led to energy shortages in several parts of the developing world that rely on imported gas, notably Pakistan and Bangladesh. Major growth markets for gas, such as India and China, meanwhile sharply reduced their LNG imports in 2022.

Natural gas markets are expected to remain tight in 2023 as Russia, one of the world’s largest exporters, further reduces supplies to Europe, according to the International Energy Agency.

Demand in China and Japan, the world's biggest importers of LNG, was almost unchanged in the first eight months of 2022, compared with the same period a year earlier, while it contracted in India and Korea, the Paris-based agency said in an October report.

Demand in China is expected to rise by less than 2 per cent in 2022, its lowest yearly growth rate since the early 1990s.

Chinese importers are opting to secure a supplier for the “mid to long term” amid tight supply and increasing volatility in prices, Rystad Energy said in a report this week.

The share of contracted volumes in China’s LNG imports has risen to more than 80 per cent this year, compared with about 60 per cent in 2021.

Last week, Japan and Thailand signed a preliminary agreement to share LNG during severe shortages.

The shutdown of Freeport’s LNG export plant in Texas has added to the squeeze on global gas supplies.

Freeport LNG said it was aiming for a partial restart of the terminal, one of the largest in the US, in mid-December, with full renovation expected to be completed by late November.

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