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CNOOC kick-starts China's first long-term LNG terminal access

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CNOOC kick-starts China's first long-term LNG terminal access

Singapore — China National Offshore Oil Corp has moved to open up its LNG import terminals to third-party access -- a first in the country and after two trial runs late last year.

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Each third party user must take in a minimum four cargoes (260,000 mt) per annum over 10 years, according to a recent release by Shanghai Petroleum and Gas Exchange. That requirement may be increased, in multiples of four cargoes, subject to bilateral discussions, according to market sources.

The initiative led by CNOOC and SHPGX has come amid a series of gas market reforms and against the backdrop of the government's push to set up an integrated national pipeline company.

"The long-term TPA could be granted to more than one company, while there were no hard rules on the amount...being released," a source with direct knowledge of the matter said, adding that greater access could be allowed in the future.

While the initiative opens the way to allow more independent buyers to enter the international market, the was concern about having to lock in cargoes at term prices for the next 10 years, a second source said.

On allocation, half of the volumes will come from CNOOC's long-term contract portfolio, while the other half gives the user the flexibility of direct procurement in the international market.

"With such arrangements, third party users will absorb some of CNOOC's term volumes," an end-user said. "CNOOC could optimize and bring down overall portfolio cost by replacing those term cargoes with cheaper spot purchases."

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Spot LNG prices in Asia have been set on a continuous decline since September 2018, amid mild winter weather and ample spot supply in the Pacific.

The Platts JKM for April delivery was assessed at $5.65/MMBtu Tuesday, while oil slope equivalent levels fell from around the mid-14% in September to around the high-8% Tuesday. That, compared with oil slope levels above 12% seen in legacy long-term contracts owned by the Chinese oil majors, is likely to lure them into the spot market, sources said.

Parties will have to submit their interest by March 31, SHPGX said. Subsequent negotiations will be carried out over April and May on pricing and delivery details, according to three sources with knowledge of the discussions.

During a trial test late last year, CNOOC sold access to its two terminals through auctions held on SHPGX over September-October.

The first auction, on September 20, involved an import slot at the company's Yuedong LNG terminal, for a cargo to be discharged from October 22-26.

The import access was awarded to state-owned Zhenhua Oil and private company Longkou Shenton Energy, according to a source with direct knowledge of the matter. The import slot allowed opportunity for the independent buyers to procure a spot cargo from Chevron, sources said.

The second auction later was for an import slot at CNOOC's Zhejiang LNG terminal for a November 24-30 discharge, which was heard awarded to Zhejiang's Panergy, according to sources.

China's CNOOC gas and power group is the largest LNG importer in China, with a total of nine LNG receiving terminals.

-- Shi Yun Fan, shiyun.fan@spglobal.com

-- Kenneth Foo, kenneth.foo@spglobal.com

-- Edited by Daniel Lalor, newsdesk@spglobal.com