China in the driving seat for LNG price negotiations with Canada

China gained an advantage in price negotiations with Canadian LNG producers due to its supply deal with Russia.

Chen Wei Dong, chief energy researcher with the national oil company’s Energy Economics Institute said that another deal with Russia is in the pipeline and should be completed and signed later this year or early 2015, reports Platts.

Dong further said that these agreements are all part of China’s efforts to diversify energy sources, noting that Canadian LNG produces will have to find a way to disconnect LNG prices from the price of crude in order to be competitive.

Director general of oil and gas finance with Japan Bank for International Cooperation, Mitsuru Sato, told at the Canada LNG Export Conference and Exhibition in Calgary that Canada will have to change its LNG pricing formula with options ranging from hub-linked, hybrid or new cost-based LNG formula.

Chen Wei Dong further stated that even with the Russia deal, China will be short of gas by 2020 and Chinese buyers are looking globally to secure additional supplies. Even though the country has been importing Australian LNG, the prices have turned Chinese interests to North America.

LNG World News Staff, September 19, 2014; Image: CNOOC