Exxon Mobil Corp has signed a framework agreement on a 15-year liquefied natural gas (LNG) supply deal with Zhejiang Provincial Energy Group, a senior executive said on Thursday, marking Zhejiang Energy’s first long-term supply deal.
Peter Clarke, president of Exxon Mobil gas and power marketing, was speaking at the International Petroleum and Natural Gas Enterprise conference at Zhoushan, near Shanghai.
Exxon Mobil Corp is placing big bets on China’s soaring liquefied natural gas (LNG) demand, coupling multi-billion dollar production projects around the world with its first mainland storage and distribution outlet.
LNG supplies to China would come from a combination of Exxon Mobil’s global portfolios – not necessarily from the United States – as the company boosts output from Papua New Guinea and Mozambique, Clarke said later on the sidelines of the meeting.
State-owned Zhejiang Energy is a coal producer and utilities operator, and formed a joint venture earlier this year with commodities trader Glencore to trade energy products including LNG.
In the middle of a Sino-U.S. trade war, the world’s largest publicly traded oil and gas company is turning toward Beijing for business at a time when most of Corporate America is looking elsewhere to avoid the threat of tariffs.
Its gas strategy is moving on two tracks: expanding output of the super-cooled gas in places such as Papua New Guinea and Mozambique, and creating demand for those supplies in China by opening Exxon’s first import and storage hub, according to an Exxon manager and people briefed on the company’s plans.
That combination “will guarantee us a steady outlet for lots of our LNG for decades,” said the Exxon manager who was not authorized to discuss the project and spoke on condition of anonymity. One of the company’s top policy goals this year, the manager said, is building its Chinese client roster.
“China’s natural gas demand is rising really fast, with imports soaring well over 10 percent annually at the moment because of the government gasification program and due to fast rising industrial demand, including in petrochemicals,” the Exxon manager said.
An Exxon spokesperson declined to provide an executive to discuss the company’s LNG investments in China.
Years in the making, the strategy delivers an added benefit: helping Exxon sidestep a global trade war. Exxon’s massive LNG projects in Papua New Guinea and Mozambique will not incur the 10 percent tariff China put on U.S. gas as part of the trade war between the Trump administration and Beijing.
Jason Feer, head of business intelligence at LNG tanker brokers Poten & Partners, which tracks LNG sales, said the deal provides “a sign that China is willing to let foreign interests invest in things that in the past were seen as strategic.”
Exxon is among the top ranked U.S. companies that are pushing ahead in China despite the trade dispute, but it is not alone. U.S. and European car makers are opening or expanding China plants to avoid hefty tariffs and transport costs. Tesla Inc this month acquired a Shanghai site for a car and battery-manufacturing complex.
Exxon’s Asian and African LNG will offer a cost advantage over U.S. rivals’ exports that face tariffs and greater transport, while China’s support for the project offers a rebuttal to Trump administration complaints about the country’s closed markets.
The decision to expand its LNG production and open an import terminal in the world’s fastest growing LNG market is a step by Exxon Chief Executive Darren Woods to pull the company out of an earnings rut that has left its shares flat over the past seven years.
Source: Reuters
