Sinopec Inks Gas Deal with Exxon

The China Petroleum & Chemical Company, or Sinopec (SNP - Analyst Report) has signed a 20-year agreement with ExxonMobil Corporation (XOM - Analyst Report) to buy liquefied natural gas (LNG) from the Papua New Guinea project.

Papua New Guinea is an integrated natural gas project that covers the exploration, treatment and delivery via onshore and offshore pipelines as well as liquefaction plants. ExxonMobil owns 41.5% of the PNG project, while Oil Search Ltd., Santos Ltd. and Nippon Oil Company hold 34%, 17.7% and 5.4%, respectively.

Under the terms of the agreement, Exxon will annually provide 2 million metric tons of LNG for 20 years to Sinopec's natural gas receiving terminal in the Qingdao Port of Shandong province in East China, which is currently under construction.

The gas-receiving terminal, aimed at satisfying the increasing natural gas demand of the local market in Shandong, is designed to accommodate the PNG LNG supply, given its 3 million tons per year warehousing capacity during its first phase of construction. Its reserve capacity will increase later, when the market needs to reach 5 to 6 million tons per year in the second phase.

With the growing demand for gas, Chinese energy companies have signed several deals to import adequate quantity of natural gas from the Gulf, Africa, Central Asia and many other areas. For an example, PetroChina Company Limited (PTR - Analyst Report), Sinopec’s rival, had inked an agreement in August to buy natural gas from Australia's Gorgon field for $41 billion.

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