Shanghai — China's Unipec is looking to secure more spot and short-term LNG supply deals over 2019-22 to diversify away from more costly oil-linked long-term contracts, and enhance risk management capabilities in an increasingly deregulated and liquid global gas market.
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Unipec, the international trading arm of state-owned Sinopec, currently secures 20-30% of its LNG requirements from the spot market, Zhang Chunbao, general manager with the natural gas division of Unipec, said at the China International Oil and Gas Trade Congress in Shanghai Friday.
"We cannot depend 100% on the spot market to secure our supplies, as our calculation shows that an additional 3-4 million mt of spot demand is able to lift spot prices by $1/MMbtu," he said.
"Buyers prefer to price long-term supplies against spot LNG benchmarks like [Platts] JKM, which leads to less price risk for reselling the cargoes," Zhang said. "It used to be the buyers taking the risk for LNG project development, but now this is increasingly being shared among suppliers, buyers and investment banks," Zhang said.
Over January-September, Sinopec suffered losses worth Yuan 4 billion in LNG imports, partly caused by rising crude oil prices, Song Zhenguo, deputy director general of the corporate finance department, said during the state-owned company's Q3 results earlier this month.
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"Oil prices have increased, so our LNG term contract prices are higher," Zhenguo said at the time.
The company is also looking to build more gas storage capacity to reduce bottlenecks in the peak winter season, grow its LNG trading profile, and is in discussions with potential suppliers for long-term contracts starting from 2023, Zhang said.
Unipec, which has an LNG trading desk in Singapore, currently trades around 2 million-3 million mt/year of LNG in overseas markets, and targets to grow the volume to 10 million mt/year in the coming years, in line with its expanding crude oil trading activities, Zhang said.
Unipec, the world's biggest crude oil trader, traded 340 million mt of crude oil in 2017, 55% for imports into China and the remaining 45% for trading in the international markets.
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