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MarketScreener Homepage  >  Equities  >  Hong Kong Stock Exchange  >  China Gas Holdings Limited    384   BMG2109G1033

CHINA GAS HOLDINGS LIMITED

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Exclusive: Sinopec to review potential $16 billion U.S. gas deal with Cheniere - sources

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01/17/2020 | 12:30pm EST
FILE PHOTO: Man stands next to a logo of Sinopec at an expo on rubber technology in Shanghai

China's Sinopec, expected to be the next major Chinese buyer of U.S. liquefied natural gas (LNG), is planning to review terms of a potential $16 billion supply deal with Cheniere Energy Inc after a sharp drop in LNG prices, industry officials said.

That could delay sign-off on a deal that would help Beijing meet ambitious targets it set for U.S. energy purchases in a Phase 1 trade agreement it signed with the United States on Wednesday.

Sinopec, officially named China Petroleum & Chemical Corp, and Houston-based Cheniere had been expected to sign the 20-year deal once a trade truce was reached between Beijing and Washington.

However, the LNG market has shifted since news of Sinopec and Cheniere's negotiations became public early last year. In the intervening period, the U.S.-China trade war sapped Chinese purchases of U.S. LNG, and several other gas suppliers, including Qatar, the lowest-cost producer, decided to build new export plants.

That coming supply would add to an existing glut that has caused gas prices to collapse to their lowest levels in years and could keep them suppressed - giving Sinopec additional leverage with Cheniere.

Both companies declined to comment.

A source familiar with the talks said many items needed to be reviewed as U.S. gas prices have more than halved since 2018.

"Sinopec is talking to several other U.S. suppliers," said a second source. "It's really not clear at this stage what will come out."

The firm, as one of the few state buyers with appetite to sign new multi-year LNG supply deals, also needs to lobby Beijing to remove or rebate a 25% tariff that has made U.S. imports uneconomical in the past year, one of the sources said.

"(The deal) will be renegotiated... over delivery terms and price," said an industry executive with knowledge of the matter, who declined to be named as the matter is not public. "It may not be tough, but will take time."

LITTLE COMMUNICATION

Sinopec, which plans to more than double its LNG receiving capacities to 41 million tonnes by 2025, emerged last year as China's biggest spot buyer of LNG, as it is a much smaller purchaser under long-term deals than PetroChina Co Ltd or China National Offshore Oil Corp (CNOOC).

Those two firms are committed to other long-term contracts, and therefore much less likely to seek new supply agreements with U.S. exporters. They are also facing slower domestic demand growth and weaker prices, which have led to losses in their LNG import business.

State oil firm China National Petroleum Corp (CNPC) has already fulfilled its supply needs through existing deals with Cheniere, and is also anticipating new supply from investments in the Russian Arctic and Mozambique, said one trading executive.

The prospect of buying U.S. LNG is even more remote for China's so-called second-tier independent gas companies, because they have little access to terminal facilities.

"We'll be in close contact with U.S. suppliers, but price is always the key," said Frank Li, assistant to the president of private city gas distributor China Gas Holdings. "For now Russian pipeline gas is cheaper, Qatari gas is cheaper."

A top state-oil trading executive said his level of management had received no internal briefing from the government over what products Beijing had in mind when agreeing the Phase 1 trade deal.

"We're already under steep pressure to absorb high-cost term supplies ... and as the market is expected to stay over-supplied beyond 2023, why should we sign up to more term deals?" a CNOOC gas manager said.

By Chen Aizhu

Stocks mentioned in the article
ChangeLast1st jan.
CHINA GAS HOLDINGS LIMITED -2.02% 29.1 End-of-day quote.-1.02%
CHINA PETROLEUM & CHEMICAL CORPORATION -0.43% 4.66 End-of-day quote.-8.81%
CNOOC LIMITED -1.73% 11.36 End-of-day quote.1.25%
LONDON BRENT OIL 0.19% 51.42 Delayed Quote.-16.85%
PETROCHINA COMPANY LIMITED -0.96% 5.17 End-of-day quote.-10.98%
QUDIAN INC. 2.90% 2.48 Delayed Quote.-48.83%
WTI -0.73% 46.38 Delayed Quote.-16.16%
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Financials (HKD)
Sales 2020 67 634 M
EBIT 2020 12 907 M
Net income 2020 9 779 M
Debt 2020 24 174 M
Yield 2020 1,81%
P/E ratio 2020 15,6x
P/E ratio 2021 13,5x
EV / Sales2020 2,62x
EV / Sales2021 2,24x
Capitalization 153 B
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Mean consensus OUTPERFORM
Number of Analysts 21
Average target price 35,34  HKD
Last Close Price 29,35  HKD
Spread / Highest target 49,9%
Spread / Average Target 20,4%
Spread / Lowest Target -29,1%
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Managers
NameTitle
Ming Hui Liu Executive Chairman, President & Managing Director
Yong Huang Executive President & Executive Director
Wei Wei Zhu Chief Financial Officer, Executive Director & VP
Erwan Mao Independent Non-Executive Director
Yu Hua Zhao Independent Non-Executive Director
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