Sinopec's natural gas business posts 47.93% jump in Q1 profit

Chinese state-owned Sinopec's natural gas business posted a 47.93% year-on-year increase in profit in the first quarter to about Yuan 6.08 billion ($880 million), on the back of stronger gas demand and higher downstream selling prices, Chief Financial Officer Shou Donghua said at a first quarter results briefing on April 28.

Higher profits on natural gas sales are in line with many other global oil and gas companies that have benefited from the rise in gas prices.

Sinopec's natural gas business has two segments -- domestic natural gas and LNG imports. Its domestic natural gas segment posted a 20.4% year-on-year increase in first quarter profit to Yuan 6.96 billion.

This helped offset losses in the LNG import business, which has generally been lossmaking as the company has to sell costlier gas at state-regulated downstream prices. LNG losses narrowed by 47.3% to Yuan 870 million in the first quarter as it was able to resell some term LNG cargoes on the higher-priced spot market.

Overall Sinopec's natural gas selling price rose by more than 15% year on year in the first quarter, with some specific segments like non-regulated gas seeing prices rise by about 25%, Chou said.

"Sinopec's natural gas sale price complies strictly with the government's regulations, but at the same time we also seized the opportunity of gas demand recovery in Q1 to increase the downstream sales price," she said.

"We will continue to increase the supply capacity to meet the country's energy security needs, and we will also adjust and optimize our marketing strategy, especially in the gas demand shoulder seasons, in a bid to improve our profitability," she noted.

The company did not provide any details on gas volumes.

Procurement strategy

Sinopec continued to optimize its LNG procurement strategy in the first quarter by increasing the proportion of long-term LNG volumes while limiting the purchase of spot LNG cargoes, Shou said, noting that the company has also reduced LNG procurement costs through hedging operations.

Sinopec has been active in signing long-term LNG contracts and buying equity stakes in supply projects overseas in the past two years. It signed a shareholding agreement with QatarEnergy on April 12 to acquire a 1.25% stake in the North Field East expansion project.

The equity stake followed the signing of a 27-year sales and purchase agreement between Sinopec and QatarEnergy in November 2022, for 4 million mt/year of LNG to be supplied from the North Field East expansion project.

Previously, Sinopec's trading arm Unipec in late 2021 signed a 20-year SPA with US-based Venture Global for 4 million mt/year of LNG from the Plaquemines LNG export facility. In early 2021 it also signed a 10-year deal with Qatar for 2 million mt/year of LNG starting from 2022.

"Sinopec's self-produced natural gas can only meet 50%-60% of its annual demand, and the remaining 40-50% demand needs to be purchased in the international market," Huang Wensheng, vice president and secretary to Sinopec's board said, adding that the Qatar project is a major component of Sinopec's global business layout.

Long-term charter

Sinopec also signed a long-term agreement with Shandong Marine Group (SDMG) to charter two LNG carriers of 175,000 cubic meters each on April 27, SDMG said on its social media account.

"We issued a tender to charter two LNG carriers for 20 years for our Venture Global project, and SDMG won the bid," a Sinopec source with knowledge of the matter said.

The two LNG carriers will be built based on Sinopec's requirement and are expected to be delivered after 2027, according to the source.

SDMG is a state-owned enterprise in the marine industry established by the Shandong provincial government.

Venture Global's Plaquemines LNG export facility phase 1 project is expected to start long-term contract LNG delivery in 2025, market sources said.

They said delays in Venture Global's declaration of a commercial operations date for the Calcasieu Pass LNG project has raised uncertainty among project partners on the start-up time of the Plaquemines LNG phase 1 project as well.