) is set to sign a $20 billion liquefied natural gas (
) deal with China National Offshore Oil Corporation (CNOOC).
Through this 20-year LNG supply contract, the London-based energy
giant plans to tap into the fast-growing demand for natural gas in
China. The company is expected to source LNG from the Freeport LNG
project in the U.S. In February last year, BP entered
into a 20-year natural gas liquefaction tolling contract for 4.4
million tons per annum (MTPA) capacity at the upcoming LNG plant on
Quintana Island, Texas.
BP is one of the world's leading oil & gas
multinationals with operations in more than 80 countries. As a
vertically integrated oil and gas major, it has both upstream and
downstream operations. The upstream division primarily includes
exploration and production activities for oil and gas, while the
downstream division focuses on producing refined petroleum products
such as gasoline.
We currently have a
price estimate for BP
, which is almost in line with its current market price.
See Our Complete Analysis For BP
The U.S. Energy Information Administration (
) expects the global natural gas demand to grow by 64% from 113
trillion cubic feet in 2010 to 185 trillion cubic feet in 2040,
primarily due to its growing use in electricity generation,
industrial operations and transportation. This is partly driven by
the fact that it has much lower carbon intensity compared to coal,
for which, it is favored by governments of most countries planning
to reduce greenhouse gas emissions. The EIA estimates industrial
and utilities sectors to account for 77% of the projected increase
in global natural gas consumption.
Most of the growth in industrial and utility sectors is expected
to come from emerging markets in the Asia-Pacific region, which
holds just around 8% of global proved natural gas reserves and
accounts for almost one-fifth of the total natural gas consumption
globally. With a rather concentrated supply growth and emerging
demand from Asia-Pacific countries, the world natural gas trade,
especially LNG trade, is poised to grow higher in the coming
The share of LNG in global natural gas trade has grown steadily
over the past few years from around 28% in 2008 to 31.5% in 2013.
This is primarily due to the fact that natural gas imports by the
Asia-Pacific countries that rely mostly on LNG (~80%) are growing
much faster than the rest of the world. The global natural gas
demand is estimated to have grown by about 2.5% per year since
2000; however, global LNG demand has risen by more than 7% per year
over the same period, almost three times faster.
Currently, most of the LNG demand in the Asia-Pacific region
comes from two industrialized countries, Japan and South Korea.
Although these two countries together account for just 5% of the
global natural gas consumption, they import more than 50% of the
total LNG traded worldwide. This is because of negligible domestic
supply, and a huge demand form industrial and utilities sectors in
However, most of the LNG demand growth in the Asia-Pacific
region is expected to come from China. Government policy aimed at
reducing greenhouse gas emissions to deliver cleaner economic
growth is the key factor driving higher natural gas demand in the
country. Although the fuel represents just around 5% of the
country's total energy consumption currently, the government
expects to double it to 10% by 2020. China is not only planning to
replace huge amounts of coal used in the generation of electric
power with natural gas, but it also plans to replace as much as
one-tenth of its oil demand by shifting toward natural gas fueled
While China is trying hard to boost its domestic natural gas
supply through shale drilling, consumption is growing at such a
rate that the country is becoming increasingly reliant on imports.
Recently, China signed a $400 billion long-term natural gas deal
with Russia. Its state oil giants have also struck long-term deals
with the global LNG suppliers to meet their future demand. CNOOC
plans to double its total LNG receiving capacity to 35-40 MTPA by
2015, as it expects LNG imports to play a bigger role in meeting
China's growing energy needs going forward. The chart below
depicts how China's share of the global LNG demand has grown over
the past few years.
Data Source: BP Statistical Review of World Energy
BP plans to tap into China's surging demand for natural gas by
signing a $20 billion LNG supply agreement with CNOOC. However,
first LNG sales under the agreement could be at least 4-5 years
away since the company is expected to source LNG from an upcoming
liquefaction facility in Texas, U.S. Last year, BP entered into a
20-year natural gas liquefaction tolling contract for 4.4 MTPA
capacity at the Freeport LNG project. The project received
authorization from the U.S. Department of Energy last year, to
export up to the equivalent of 657 billion cubic feet per year of
LNG to countries not in free trade agreements with the U.S.
Construction on the project is expected to begin by the third
quarter of this year, and the first liquefaction train is expected
to come online in 2018. However, the second liquefaction train for
which BP entered into a tolling contract with Freeport LNG is
expected to come online in 2019.
See More at Trefis
View Interactive Institutional Research
(Powered by Trefis)
Get Trefis Technology