China's state-owned Petrochina is planning to replace its oil-linked long-term LNG contracts with shorter, more flexible deals, in line with rising downstream competition and a global trend towards greater liquidity and transparency in the LNG industry, a senior company official said Friday.
Petrochina's existing oil-linked long-term contracts from Qatargas, Yamal and Gorgon, will not be renewed, said Petrochina's Vice Chairman and President Wang Dongjin at the company's 2017 financial results announcement.
Five contracts, for a combined total of 14 million mt/year, will expire over the period 2025-2038, according to S&P Global Platts Analytics.
In 2017, China became the largest contributor to global LNG consumption growth, surpassing South Korea as the world's second biggest LNG importer, and its share of global LNG demand is expected to converge with that of Japan by 2030. The country's spot requirements are also growing, as its contracted obligations rise much more slowly than its demand projections, meaning Chinese importers will play an increasing role in global LNG market fundamentals and prices.
As the share of LNG in China's gas consumption rises, domestic competition grows, and a robust LNG benchmark emerges, the erosion of the traditional oil-linked LNG supply model becomes inevitable, in favor of deals that are shorter, smaller and more flexible, and priced not against an associated commodity but LNG itself.
