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Breakingviews – China’s majors fill up on gas at the right time


HONG KONG (Reuters Breakingviews) – China’s oil majors are filling up at the right time. PetroChina’s losses on gas imports swelled last year, thanks to low rates at home. Yet the $200 billion behemoth and rivals are preparing to buy more liquefied natural gas from the United States anyway. It’s a good way to help defuse trade tension, of course. More importantly, the purchases can lock in supply before an expected shortfall.

PetroChina said on Thursday that it took a 24.9 billion yuan ($3.7 billion) hit on its gas imports last year, 960 million yuan more than in 2017. China’s biggest oil major, which controls almost two-thirds of mid-stream gas infrastructure, has a mandate to ensure ample domestic supplies – even if that means selling at a loss into the price-regulated market at home.

So it might seem odd that Chinese majors seem so keen to sign deals abroad. Reuters reported earlier this month that Sinopec aims to sign a 20-year LNG deal with U.S. player Cheniere Energy once a trade dispute between the two countries is resolved. China National Petroleum Corporation last year inked a deal with the same company that lasts through 2043.

Part of the motivation is no doubt to assuage President Donald Trump’s concerns about the bilateral trade deficit. A heftier reason is that China’s gas consumption is still surging – it increased by almost a fifth last year – and foreign supplies are the only recourse. Nicholas Browne at Wood Mackenzie reckons the country is on track to overtake the Japan as the world’s leading importer of LNG.

But there’s more. While PetroChina’s domestic pricing issues may be temporary, the current buyer’s market is probably not. Ample supply has in part driven Asian spot LNG prices to their lowest level in years – a drop which may not last, as demand grows. Globally, Macquarie reckons an 8-metric-tonnes-per-annum excess of LNG supply this year will switch to a shortfall in 2021, then a possible 67 metric tons gap by 2025. Gas may be a loss-making business for some of China’s oil majors; time to lock in long-term supplies anyway.

BREAKINGVIEWS

Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.



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