With burgeoning demand for natural gas in the country, Chinese natural gas distribution companies are further diversifying gas import sources with long-term contracts to ensure sufficient gas supply in the nation, analysts said.
China's privately controlled ENN Group and Zhejiang Energy Group CP Ltd recently agreed to secure gas imports from Russian energy company Novatek through long-term agreements on the supply of liquefied natural gas from the Arctic LNG 2 project.
Arctic LNG 2 is Novatek's second LNG project, which includes the construction of three LNG liquefaction trains of 6.6 million metric tons per year each for a total LNG capacity of 19.8 million tons, and cumulative gas condensate production capacity of 1.6 million tons annually, Novatek said.
The contract with Zhejiang Energy stipulates the supply of up to 1 million tons of LNG per year for 15 years. The agreement with ENN Natural Gas involves the delivery of approximately 600,000 tons of LNG annually over a period of 11 years. The LNG will be delivered to the LNG terminals of the two companies in China, Novatek said.
Li Ziyue, an analyst with BloombergNEF, said booming receiving capacity construction and robust LNG demand in China have led to a surge in contracts.
"Second-tier players also played a bigger role in contract signings, accounting for more than a third of the total newly signed volume in 2021," Li said. "As the expansion of LNG receiving capacity outpaces the growth of contracts, the gap between China's LNG contract supply and import terminal capacity is expected to balloon, which may lead to more contracts in the near term."
ENN operates 230 town gas distribution projects in China, with distribution capacity exceeding 10 billion cubic meters per year, approximately equivalent to 7.2 million tons of LNG.
Zheng Hongtao, president of ENN, said the contract will expand ENN's LNG import portfolio, helping meet domestic demand and assist China's low-carbon energy transition.
Luo Zuoxian, head of intelligence and research at the Sinopec Economics and Development Research Institute, believes natural gas will become a key area of cooperation between the two sides, while imported natural gas can drive the whole natural gas industry chain, including gas transmission, storage and gas power generation.
"With China's demand for natural gas expected to further increase in the future, cooperation between China and Russia in the future will only be enhanced," Luo said.