Sinopec bolsters winter LNG supplies amid Chevron strike concerns

Quantum Commodity Intelligence – China's Sinopec has tendered for a total of 25 LNG cargoes for delivery starting this October and running through until the end of next year, according to a  Reuters report, with deliveries stacked towards the fourth quarter.

The tender has a strong bias towards the prompt market as China covers against demand shortfalls this coming winter, amid concerns over possible shortages during the peak heating demand season with gas also a key feedstock for China's power generation and industrial sector.

Sinopec is asking for one cargo for October delivery, five in November and seven for December, followed by one cargo each month throughout 2024.

The cargoes will be on a DES-China basis and indexed to the Platts Japan-Korea-Marker (JKM) benchmark, with the exception of the first cargo scheduled for next month, which is likely to be Brent indexed.

JKM futures for Oct23 closed Tuesday at $13.39/mmBtu, followed by Nov23 at $14.56/mmBtu, while the key Jan24 and Feb24 winter contracts were around $18/mmBtu - although the JKM-linked Sinopec deliveries will be on a floating-price basis.

Strike

The front-loaded tender comes amid industrial action being taken by Chevron staff working at gas installations in Australia, which is poised to escalate and likely cause major disruptions to LNG exports.

The two plants supply around 6% of global LNG supplies, but there is uncertainty on how much impact a full-scale strike, which includes offshore workers at Wheatstone, would have on total output.

Unions have said they will ensure critical personnel during at the Wheatstone and Gorgon gas projects to cover domestic gas needs, suggesting a sharp drop in LNG supplies if the full strikes go ahead, potentially halting all exports.

Chevron is currently taking the dispute to arbitration in a bid to make the strike action rule illegal.

According to S&P Global Commodity Insights, at least one Japanese buyer has been informed its LNG deliveries will not be impacted by the escalating dispute, whereas another has been told by Chevron to make provisions for alternative supplies.

Japan is the primary consumer of LNG from the projects, lifting around 30% of Gorgon output and 83% of Wheatstone, according to research from S&P Global.

Benchmark European TTF prices have seen sharp swings since the strike action was first mooted last month, which at the time also risked separate industrial action from Woodside offshore personnel – a dispute since settled.

By contrast, spot LNG prices in Asia have been relatively stable with October JKM assessed by Platts at $13.301/mmBtu on 13 Sept, down just 2.4 cents on the day.

Prices are sharply lower compared to the same stage last year when JKM was around $40/mmBtu, while Jan23 was close to $50/mmBtu, which were both down by around 40% from the record highs in August 2022.