The California-headquartered oiler announced at the end of last month it had concluded a binding LNG sales and purchase agreement with ENN for the delivery of gas from Chevron's global supply portfolio which, consisting of Australia and Angola, is pretty thin geographically.
However, Gorgon in Western Australia is one of the world's biggest LNG projects at 15.6 million tonnes per annum.
With Chevron also involved in the North West Shelf Joint Venture, Energy News understands that the US oiler has had volumes going out to other customers outside mainstays like Japan, including Chinese customers, through other arrangements for some time now.
Chevron said when announcing the ENN deal that as the oiler grows into "one of the world's largest LNG suppliers", the agreement represented further progress and diversification of its global sales portfolio.
RBC Capital Markets said this week that Chevron and Total have the highest exposure to LNG projects among the world's majors, including Angola LNG (both), Gorgon and Ichthys, all of which were sanctioned in a higher oil price environment.
ENN was the Chinese player that bought into Gladstone LNG operator Santos - which also has a 13.5% stake in the ExxonMobil-operated PNG LNG project - early this year then upped its stake in May.
ENN, which is set to become a gas importer later this decade once the 3MMtpa Zhoushan terminal is complete, is Santos' largest shareholder and wants to become more integrated into the full natural gas supply chain.
Wood Mackenzie understands that ENN's latest deal with Chevron converts the heads of agreement to a binding LNG sales and purchase agreement, which would make it the sixth medium to long-term LNG contract signed with emerging Chinese buyers this year alone.
Wood Mackenzie's Perth-based lead analyst for Australasia Saul Kavonic told Energy News that the latest ENN deal was another indication of how Chevron's LNG sales strategy has changed recently.
"Prior to 2015, Chevron pursued a strategy of selling LNG into north-east Asia on a long term basis at high levels of oil indexation," Kavonic said.
"Since 2015, Chevron has altered its strategy and signed medium term (5-10 year) contracts with SK E&S in Korea and its three emerging Chinese buyers at cheaper prices, undercutting other sellers."
Kavonnic says that with Asian LNG spot prices likely to stay low for several years, there is little incentive for Chevron to maintain exposure to the spot market.
Wood Mackenzie's base case forecast is for a recovery in oil prices while LNG spot prices remain subdued, so a producer can lock in a long-term oil-linked contract that may be preferable to being subject to what could be a more depressed spot price over the next 5-7 years.
"Chevron is not planning any additional LNG investments, so there's no advantage in keeping uncontracted volume to pre-sell new projects," Kavonic said.
"Additionally, because it does not have the same LNG portfolio diversity as super-major rivals like Shell and BP, it's harder to create value from today's spot market."
A Chevron spokesperson told Energy News that the company's LNG projects were long term assets and that it "takes a long term view".
"The commercial details of Chevron's marketing contracts are confidential. The term of the agreements are set in consideration of customers' specific LNG supply needs," the spokesperson said.
Evolving market
While it's not unusual for companies to secure the best deals to contract their gas in low price environments, Wood Mackenzie's view of Chevron's changing strategy in an evolving LNG market highlights the situation such sellers are in at the moment.
Discussing the evolving LNG market with Energy News recently, Woodside Petroleum CEO Peter Coleman said that Japan's declining population meant it would constitute "less and less of the market over time".
Other traditional LNG markets like Korea are also declining, though there new buyers have sprung up there.
Coleman said this decline in traditional markets meant new projects going forward will have "different risk profiles".
"Historically you've wanted 85% of the volume of those projects going to long-term contracts (15 years plus)," he said.
"The future may be that 50% of those go to 15 years plus and the rest go to 5-10 year contracts. That's just the nature of a more flexible market."
Wood Mackenzie's analysis reveals that these four deals could reduce Chevron's uncontracted exposure from around 4.5 million tonnes per annum in 2020 to as little as 1.6MMtpa, provided the buyers off-take the full contract volume.
Key issue
However, a key issue for selling to Chinese emerging buyers remains access to infrastructure, as neither ENN nor Huadian currently having import facilities.
"In general, third party terminal access and permits for new import terminals remain a challenge for emerging LNG buyers in China, which has been dominated historically by the national oil companies," Kavonic said.
Admittedly, both ENN and Huadian have proposed import terminals of varying capacities - ENN announced plans in April 2012 for a small-scale LNG import terminal on Zhoushan Island, with the initial phase expected to have 600,000tpa capacity, to ultimately expand this to 3MMtpa.
However, ENN also understood to have limited transmission infrastructure, so Wood Mackenzie anticipates further growth in ENN's trucked LNG fleet to facilitate this.
Energy News also understands, however, that the construction and planning of new terminals by ENN and Huadian are aligned with Chevron's contract timelines.
ENN's Zhoushan LNG receiving terminal is being constructed and expected to be in operation by 2018.
Huadian is planning a LNG receiving terminal along the east coast, having lined up with the local government in Jiangmen of southern Guangdong province to build a terminal in 2019.
