China's state-owned CNOOC is spending $10 million to lease two tankers to store an emergency stash of liquefied natural gas (LNG) amid growing concerns that China is facing a winter fuel crisis, a source with direct knowledge of the matter said. LNG tankers are not only among the most expensive merchant vessels to hire, but keeping the fuel super-chilled is energy intensive and costly, much more expensive than putting crude on an oil tanker for later sale.
Also, market conditions mean the value of the LNG stores are likely to have fallen from their purchase price by the time CNOOC starts selling off the supplies.
The move highlights the unusual methods being employed by the state major to plug shortages as China's campaign to convert millions of homes to gas heating from coal and force factories to use gas boilers for the first time boosts demand. "It's like buying insurance to cover winter demand spikes," said the trading source with knowledge of the deal.
CNOOC, China's largest importer of LNG, last year hired one tanker for a similar purpose, said the source. "CNOOC arranged (to lease the two tankers) months ago anticipating the shortage will be severe this year ... so this is the first time two tankers are hired," he said. CNOOC leased Cool Explorer and Neo Energy under a short-term arrangement roughly costing $10 million, or $40,000 a day, during China's heating season between mid-November and mid-March, said the trading source.
Details of the arrangement came after the company announced on Tuesday it had leased the tankers. CNOOC did not immediately respond to an email for comment. China's surge in natural gas demand has exposed inadequate infrastructure and insufficient domestic output much earlier than most experts expected, with domestic LNG prices soaring over the past month to record highs this week.