China Petroleum & Chemical Corporation (SNP - Free Report) or Sinopec is expected to review the terms of a $16-billion liquefied natural gas (“LNG”) deal with Cheniere Energy, Inc. (LNG - Free Report) , per Reuters. The drop in LNG prices is expected to have triggered the review of the supply deal.
Notably, while China is set to become the biggest LNG importer by the end of the decade, the United States is likely to be the largest exporter within 2025, ahead of Qatar and Australia. This makes the world’s two biggest economies a perfect fit. While China is expected to import $18.5 billion worth of U.S. energy products this year, followed by $33.9 billion imports in 2021, the LNG deal with Cheniere will likely play a huge part in the phase-1 trade agreement.
Reviewing the potential 20-year LNG contract can delay the sign-off process of the deal, which could help China meet ambitious targets. The primary hurdle in the path of the deal between the two companies is the LNG price. While LNG prices plunged due to a supply glut, this gave Sinopec a leverage over Cheniere. Also, cheap LNG from Russia and Qatar will likely act as natural barriers for U.S. LNG in China.
Moreover, the existing 25% LNG tariff in China levied during the trade war is making the terms of the deal uncertain. Sinopec could seek permission for a waiver or rebate from the government of China to make U.S. LNG economical again.
Notably, Sinopec is expected to ramp up its LNG receiving capacity to 41 million tons by 2025. It was the biggest LNG spot buyer in the country in 2019. However, Sinopec is a comparatively smaller buyer of long-term LNG contracts than other Chinese energy companies like CNOOC Limited (CEO - Free Report) and China National Petroleum Corporation, which are already part of long-term deals.
Sinopec, a leading Asian integrated energy player, has declined 23.9% in the past year compared with 3% fall of the industry it belongs to.
Zacks Rank and Stock to Consider
Currently, Sinopec has a Zacks Rank #3 (Hold). A better-ranked stock in the energy sector is Chevron Corporation (CVX - Free Report) , which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Chevron’s bottom line for 2020 is expected to rise 5.5% year over year.
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