SINGAPORE Chevron Corp's (CVX.N) liquefied natural gas (LNG) supply deal with China's ENN LNG Trading Co may boost the formation of a spot market for the fuel in Asia.
Chevron signed a 10-year term supply deal with ENN to supply up to 650,000 metric tons per annum of LNG with first delivery expected in 2018 or in the first half of 2019, Chevron said in a statement on Monday.
ENN is a subsidiary of ENN Energy Holding (2688.HK), which is one of China's largest gas distribution companies and operates in 150 Chinese cities. The firm is also constructing a LNG import terminal in the northeastern city of Zhoushan that is planned to start by 2018.
Chevron expects to supply ENN through its existing LNG assets, "including the company’s Australian LNG interests at Gorgon, Wheatstone and the North West Shelf", the statement said.
Companies such as Chevron with the flexibility to match their supply with customers around the world are growing in dominance.
By depending on a number of supply terminals rather than simply one site to supply ENN, the deal may help the formation of so-called spot market for LNG. This would help to replace the dominant sales model of multi-year contracts from one supply site to a buyer, said Sophie Corbeau, a research fellow at the King Abdullah Petroleum Studies and Research Center.
"We see this as a beauty of the spot market – we have a network of buyers where sellers are not particularly committed to one buyer for a certain time," said Corbeau.
(Reporting by Mark Tay; Editing by Christian Schmollinger)