China's Unipec issues tender to sell 45 LNG cargoes from Feb-Oct

Chinese trader Unipec has issued a tender to sell up to 45 LNG cargoes from February to October, according to multiple trade sources, in a move that has fueled bearish market sentiment after spot Asian LNG prices dropped in recent weeks.

The tender has taken many market participants by surprise due to the large number of LNG cargoes on offer and because it comes after a period of tight global gas supply that pushed LNG and natural gas prices to record highs, prompting stiff competition between Asia and Europe for LNG shipments.

However, in recent weeks, demand fundamentals in the market started to reverse, with healthy inventory levels among most Asian power utilities and mild winter temperatures, while the largest LNG exporters like Australia and the US were sending out record volumes of LNG cargoes.

Unipec's 45-cargo sell tender includes some deliveries for the winter period (February-March) that reflects a mild winter in China and muted procurement activity from buyers through the end of 2021 and early 2022.

Several independent Chinese end-users like ENN Energy Holdings and Guanghui Energy were also selling spot cargoes bilaterally due to weak downstream demand and a significant reduction in industrial activity ahead of the Lunar New Year holidays and Winter Olympics event in February, traders said.

Market participants said importing LNG into the Chinese domestic market remains expensive, and the steep forward curve implies negative downstream margins for rest of the year, with incentive to switch to coal in many provinces.

The ex-terminal trucked LNG price averaged in the low Yuan 5,000s/mt on Jan. 19, according to domestic sources, equivalent to $13/MMBtu. S&P Global Platts JKM for March was assessed at $21.72/MMBtu on Jan. 18.

With spot Asian LNG prices in backwardation and expectations of lackluster domestic gas demand in 2022, Sinopec, the parent company of Unipec, wants to sell LNG while spot prices are still relatively high, a source said.

While Sinopec has no plan to buy LNG from the spot market in 2022, given that it has signed so many term contracts, it has the option to re-enter the market when prices are low, the source said. The national oil company could also be selling surplus LNG from contracts signed in late 2021 with Venture Global and Qatar Gas.

The government had mandated LNG importers to ensure stable supply for the 2021-22 winter, following which Unipec last year purchased more than 50-60 LNG cargoes via strip tenders for deliveries over June 2021-March 2022.

Later in 2021, Unipec signed a one-year contract with US Venture Global for 2.5 million mt of LNG for delivery in 2022, and a 20-year LNG supply contract for 4 million mt/year between Sinopec and Venture Global.

Prior to these, in 2021 Sinopec signed a 10-year deal with Qatar for 2 million mt/year of LNG starting from 2022. Sinopec's 10 million mt/year Tianjin LNG terminal received the first 94,000 mt LNG cargo under the agreement on Jan. 15, the company said on its official website Jan. 17.

However, some market participants said they did not expect Unipec to sell all of the 45 cargoes on offer and said they would return to the spot market if spot prices collapsed, and the NOC still has existing downstream demand to fulfill.

Unipec's tender offers two LNG cargoes for February, four for March, five each month from April to June, three each from July to August, and four each month from September to October, according to traders. The pricing basis for the bids is JKM, TTF, or fixed price and the tender closes Jan. 21 at 2 pm Singapore time, with a validity till 7 pm.