Breakingviews – Big Chinese companies refuel at the right time

HONG KONG (Reuters Breakingviews) – The big Chinese oil companies are refueling at the right time. PetroChina's losses on gas imports increased last year, due to weak domestic rates. Yet the giant and rivals, which represent $ 200 billion, are preparing to buy more liquefied natural gas in the United States. It's a good way to help defuse trade tensions, of course. More importantly, purchases can block supply before an expected deficit.

PetroChina announced Thursday that its gas imports had reached 24.9 billion yuan (3.7 billion US dollars), or 960 million yuan more than in 2017. The largest oil company in China, which controls Nearly two-thirds of gas infrastructure has a mandate to ensure an abundant supply in the domestic market – even if it means selling at a loss on the domestic market at regulated prices.

So it may seem strange that the Chinese majors seem so eager to sign agreements abroad. Reuters announced earlier this month that Sinopec was aiming to sign a 20-year LNG deal with US player Cheniere Energy as soon as the two-way trade dispute settles. The China National Petroleum Corporation, last year, signed an agreement with the same company until 2043.

Part of the motivation is no doubt to ease President Donald Trump's concerns about the bilateral trade deficit. The reason is that China's gas consumption continues to increase – it increased by almost a fifth last year – and foreign sourcing is the only recourse. Nicholas Browne of Wood Mackenzie believes the country is poised to supplant Japan as the world's largest importer of LNG.

But there is more. PetroChina's domestic price problems may be temporary, but the current buyer's market is probably not. Abundant supply has in part driven Asian Spot LNG prices to their lowest level in years – a decline that may not last as demand grows. Globally, Macquarie estimates that a surplus surplus of 8 million tonnes of LNG per year this year will go to a deficit in 2021, then to a potential deficit of 67 million tonnes by the end of this year. 2025. Gas may be a deficient activity for some of China's major oil companies; the time to lock in long-term supplies anyway.

– This item has been corrected so that the unit in paragraph 5 is set at one million tonnes per year from metric tonnes per year.