CNOOC and BP sign a large order for 30 million tons; profitability of imported LNG remains uncertain

2014-05-20 08:00

Recently, Premier Li Keqiang of the State Council visited the UK. Among the accompanying businesses, energy companies held significant positions. Currently, a major energy deal between China and the UK has been finalized. China National Offshore Oil Corporation (CNOOC) and BP signed a long-term LNG supply framework agreement in London. According to the agreement, BP will supply CNOOC with a total of 30 million tons of LNG starting in 2019. Media reports state that BP CEO Bob Dudley said the agreement is worth US\$20 billion (approximately RMB 125 billion).
　　In addition, CNOOC also signed a global strategic cooperation agreement with Shell.
　　In an interview with a reporter from the Daily Economic News, Wang Xiaokun, an analyst at Zhuochuang Information, stated that the agreement with BP helps expand China's LNG import sources, increase China's total natural gas supply, and contribute to China's energy security. Some analysts suggest that the profit prospects for CNOOC's LNG imports are currently unclear, but CNOOC's significant investment aims to secure supply while strengthening its control over the domestic LNG market.
　　Uncertain profit prospects/
　　On the evening of the 17th, CNOOC's official website released a message stating that, according to the framework agreement signed by both parties, starting in 2019, BP will supply CNOOC with up to 1.5 million tons of LNG annually from its global LNG portfolio for a period of 20 years. CNOOC stated that both parties hope to reach a final business agreement within 2014.
　　CNOOC did not disclose the specific amount of the deal. Reuters quoted Bob Dudley on the 17th as saying that the contract signed by both parties is worth approximately US\$20 billion. The reporter sought verification from CNOOC, but had not received a response by press time.
　　The agreement signed between CNOOC and Shell is a global strategic cooperation agreement, reaffirming both parties' commitment to advancing their strategic partnership in China and globally. This agreement involves cooperation on LNG and other global projects, and confirms that both parties will work together to explore broader cooperation opportunities in upstream, midstream, and downstream sectors.
　　It is understood that as early as 2004, CNOOC, BP, and the Guangdong Provincial Government signed a business contract for the first domestic LNG project, with BP holding a 30% stake in CNOOC's LNG gasification station and pipeline project in Guangdong.
　　Wang Haohao, an analyst at Longzhong Petrochemical Network, believes that over the past 10 years, CNOOC and BP have maintained a good cooperative relationship in the energy sector, including the acquisition of 60% of BP's stake in Pan American Energy for approximately US\$7.06 billion in 2010, and the signing of several oil contracts in the South China Sea deepwater cooperation area in 2011. This current business deal represents a continuation and deepening of cooperation between the two companies.
　　Public data shows that CNOOC is a major player in the domestic LNG market. In 2013, CNOOC's total LNG imports reached 13.01 million tons, accounting for 72% of China's total LNG imports for the year. By the end of last year, CNOOC had completed and put into operation six LNG receiving stations in Guangdong, Fujian, Shanghai, Tianjin, Zhejiang, and Zhuhai, with a receiving capacity of 24.8 million tons/year. The LNG receiving stations under construction in Hainan, Shenzhen, and Eastern Guangdong are expected to be put into operation by the end of 2015.
　　Although CNOOC occupies an important position in the domestic LNG industry, analysts believe that the core of this transaction is not profit.

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