TotalEnergies has signed a Heads of Agreement (HoA) with Sinopec for the delivery of 2 million tonnes of LNG per year for 15 years from 2028.
The long-term deal strengthens TotalEnergies’ position in China and follows the strategic cooperation signed earlier this year between TotalEnergies and Sinopec during President Xi Jinping’s state visit to France.
In China, natural gas is a key component of the energy transition as it mitigates the intermittency of rapidly growing renewable energies and helps reduce greenhouse gas emissions when it replaces coal in electricity production.
Stéphane Michel, President Gas, Renewables & Power at TotalEnergies, said the deal demonstrates the competitiveness of its LNG business and enables it to build on its long-term sales in Asia.
Niu Shuanwen, Senior Vice-President of Sinopec Corporation, said the HoA further strengthens the cooperation between the two companies in natural gas.
“Natural gas is an important enabler for realising energy transition and dual carbon goals. Sinopec is committed to building the world’s leading clean energy and chemical company and will continue to promote energy transition and the clean, diversified and secure supply of energy,” he said.
China reclaimed its position as the world’s largest LNG importer in 2023, when its imports increased 12.4% to 72.1 million tonnes per annum (mtpa).
Its imports will likely increase as prices fall, but domestic gas production, pipeline gas imports, and policies favouring domestic energy industries could constrain structural demand growth and leave Chinese LNG buyers with a surplus of contracted volumes, according to the Institute for Energy Economics and Financial Analysis (IEEFA).
Due to a rapid uptick in long-term contracts that begin delivery in 2024, Chinese companies are likely to ramp up LNG trading activity with buyers in other regions.
In the medium-term, IEEFA expects a growing surplus of contracted LNG volumes to emerge, as new contracts beginning delivery outpace LNG demand growth.
Under lower gas demand scenarios, the IEA states that China could face a natural gas surplus of 80 bcm (58.8 mtpa) by 2030.
“As surplus contract volumes increase, Chinese companies are likely to become increasingly active traders, putting them in more direct competition with large portfolio players,” states IEEFA.
Similar to Japanese companies, Chinese LNG players are investing heavily in LNG infrastructure in emerging Asian markets to cultivate demand.
Last month TotalEnergies signed a charter contract with Spanish shipowner Ibaizabal for a new LNG bunker vessel offering 18,600 cbm capacity.
The vessel, owned by Ibaizabal, will supply LNG to a wide range of vessels (containerships, tankers, large cruise ships, ferries) at TotalEnergies’ LNG bunkering hubs.
