Possible China-U.S. Gas Deal Said to Predate Trade War Talks

(Bloomberg) -- A new gas supply deal between the U.S. and China that’s expected to be part of a broader trade agreement has been in the works since before the trade war began and was put on ice after tensions flared, according to people with knowledge of the matter.

A deal between Cheniere Energy Inc. and China’s Sinopec, expected to be worth $18 billion, has been cited as a new concession China would make to help end the eight-month spat. But the two had been in talks for about a year only to see progress stall when the Trump administration intensified trade issues in August, according to the people, who asked not to be identified as the information is private.

Sinopec and Cheniere declined to comment.

China is the world’s fastest growing market for LNG, but suppliers in the U.S., on track to be one of the biggest exporters, have seen their efforts to court Chinese buyers jammed up because of the trade dispute.

The two nations are now close to a trade deal that could see the lifting of most or all U.S. tariffs on Chinese goods as long as Beijing follows through on a range of pledges, including buying more U.S. products.

Commercial Reasons

Sinopec, officially known as China Petrochemical Corp., is seeking a deal with Cheniere for commercial reasons and to secure a long-term source of LNG, not to appease the Trump administration, one of the people said. The companies have discussed a deal that could range from about 1 million to 2 million tons annually for a period of 20 to 30 years, the people said.

On Tuesday, Ma Yongsheng, president of Sinopec’s main listed unit, said the company will prepare to buy U.S. LNG as soon as the Chinese government orders it do so, Reuters reported, citing an interview in Beijing.

In February 2018, before trade issues intensified, Cheniere signed a supply pact with PetroChina International Co., a unit of state-owned China National Petroleum Corp., for 1.2 million tons per year over 25 years.

A trade agreement could also see China lower some tariffs. It imposed 10 percent retaliatory import duty on U.S. LNG in September.

China has taken about 10 percent of Cheniere’s exports since the company starting shipping LNG in 2016, according to U.S. Energy Department and ship-tracking data compiled by Bloomberg. Just five of the U.S. exporter’s cargoes in October through January landed there amid relatively mild weather during the peak heating demand season, compared with almost two dozen cargoes a year earlier.

--With assistance from Naureen S. Malik.

To contact Bloomberg News staff for this story: Stephen Stapczynski in Singapore at sstapczynsk1@bloomberg.net;Sarah Chen in Beijing at schen514@bloomberg.net;Jenny Leonard in Washington at jleonard67@bloomberg.net

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, ;Sarah McGregor at smcgregor5@bloomberg.net, Simon Casey

©2019 Bloomberg L.P.

With assistance from Bloomberg