Wanhua Signed 10-Year LPG Supply Agreement with Qatar Petroleum
On November 13, 2019, Wanhua Chemical signed a 10-year LPG supply agreement with Qatar Petroleum. According to the agreement, Wanhua Chemical can import about 800kt of LPG from Qatar Petroleum every year from January 1, 2020.
SCI’s analysts learn that there is no oil refining unit at Wanhua Chemical, so the company needs to purchase LPG from the market. In order to maintain stable operation, Wanhua Chemical intends to look for stable suppliers. Meanwhile, Sade, the CEO of Qatar Petroleum, showed that Wanhua Chemical is China’s largest LPG consumer, and they are willing to further provide LPG and naphtha resources for Wanhua Chemical.
The signing of this long-term agreement is the beginning of strategic cooperation between the two parties, further strengthening the major oil and gas product supplier position of Qatar Petroleum in China. Sade hopes to take this as an opportunity to develop business of LNG and other oil and gas products with more Chinese companies. Qatar Petroleum is a state-owned oil company in Qatar, and its business scope covers the exploration, development and sales of oil, natural gas, etc. The annual LPG export volume at Qatar Petroleum is about 10.5 million mt, and it is estimated that the export volume will rise by 2-3 million mt by 2024.
The signing of the 10-year LPG supply agreement is another milestone strategic resource guarantee agreement, after the 10-year LPG supply agreement signed by Wanhua Chemical and Abu Dhabi National Oil Company (ADNOC) in 2018, laying a solid resource foundation for the future development of Wanhua Chemical.However, SCI’s analysts hold that if Qatar Petroleum temporarily shuts the unit down, Wanhua Chemical will experience feedstock supply issue, as China’s LPG supply volume is relatively low and the downstream users are fixed. Besides, if Wanhua Chemical stocks up LPG resources in advance, it will inevitably lift the storage and labor costs.
On the whole, SCI reckons that this agreement may exert some bearish impacts on China’s LPG market. On the one hand, the LPG supply from Wanhua Chemical will rise, and the low-priced LPG resources will weigh down China’s LPG prices accordingly. On the other hand, the demand for the domestic LPG resources from Wanhua Chemical will weaken, aggravating the competition pressure.
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