PetroChina Ltd is in advanced discussions with Qatar to purchase liquefied natural gas (LNG) under short- and long-term agreements, three sources with knowledge of the talks said on Wednesday.
China needs to secure LNG to supply its push to replace coal with cleaner burning natural gas to reduce air pollution. After Beijing started the program last year, China has overtaken South Korea as the world’s second-biggest buyer of LNG.
Tying up with Qatar, the world’s biggest LNG producer, makes sense as the Middle Eastern country seeks buyers for a planned output expansion.
One of the deals under discussion as late as last week covers several million tonnes of annual supply starting this year though 2022, said two of the sources briefed on the discussions. The price and volume is yet to be finalised, the sources added.
A third source, who was also briefed on the matter, said PetroChina is also discussing a longer-term agreement with Qatar, without giving further details.
All the sources declined to be identified as the matter is not public. A spokesman for China National Petroleum Corp, PetroChina’s parent, declined to comment, while Qatargas did not immediately respond to an email seeking comment.
China’s LNG imports may surge by 70 percent over the next three years to 65 million tonnes in 2020, according to consultancy SIA Energy. Last year, China imported a record 38.1 million tonnes, 46 percent more than the previous year.
“The short-term deal is to supplement an existing long-term agreement,” said one of the sources, a Beijing-based industry executive.
PetroChina started supply talks with Qatar, the world’s largest LNG exporter, several months ago to cover a growing long-term supply gap as demand is set to rise faster than domestic fields could produce, said two of the sources.
Despite growing competition from rival exporters such as Australia, Russia and the United States, Qatar stands among the most competitive suppliers to China due to the size of its output, geographic proximity and low cost, said Chen Zhu, managing director at consultancy SIA Energy.
The talks with Qatar follow China’s decision to add LNG from the United States to the latest list of U.S. goods under tariffs amid the trade war between the world’s two-largest economies.
China’s imports are bound to grow as the country has only secured 43 million tonnes per year of imports and is expected to need 65 million tonnes per year of imports by 2020, rising to 87 million tonnes per year by 2020, according to SIA Energy forecasts.
“Given the growing appetite for imported LNG, China has to look for new LNG sources and investments. This will benefit new projects in Qatar, Canada West Coast, Russia, Mozambique, Australia and Papua New Guinea,” said Chen.
Qatar is looking to expand its LNG capacity to 100 million tonnes per year from 77 million tonnes per year currently.