China's ENN on Australian Buying Spree Fueled by Gas Downturn

  • ENN unit to buy stake in Australia's Santos for $750 million
  • Purchase follows LNG supply agreements with Origin, Chevron

China’s ENN Group is finding bargains in the liquefied natural gas market as prices of the fuel, and shares of companies that produce it, languish amid a supply glut.

In its latest deal, the company’s ENN Ecological Holdings Co. unit said Wednesday that it’s buying 11.7 percent of Santos Ltd. for about $750 million, becoming the largest shareholder in the Australian LNG exporter and taking over a stake owned by Chinese-based private equity firm Hony Capital. The transaction could be a prelude to a takeover, according to Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co.

Santos is among companies that have been under pressure to shore up their balance sheets in response to the tumble in energy prices. Shares in the Australian producer have declined about 65 percent in the last two years. The LNG market meanwhile is facing an oversupply as U.S. exports add to a wave of Australian shipments and Asian demand slows.

“We see this investment as based on value, with expectations of growing gas demand in China longer term, LNG markets moving back to balance after 2020, and a view of recovery in oil prices in the medium term,” Dale Koenders, a Sydney-based analyst at Citigroup Inc., wrote Thursday in a note.

Coal-Bed Technology

Santos led gains among Asia-Pacific energy companies. Shares rose as much as 3.6 percent in Sydney before paring their advance to 2.8 percent at A$4.03 by 2:57 p.m. local time. The S&P/ASX 200 Index was down 1.2 percent.

ENN also could be interested in applying Santos’s coal-bed methane experience in China, which has vast reserves, or using the Australian company as a platform to acquire overseas gas assets, Bernstein’s Beveridge said in a research note Thursday.

It follows at least three deals by ENN Energy Holdings Ltd. so far this year to buy supplies of the super-cooled fuel. The company signed separate contracts for LNG cargoes from Australia’s Origin Energy Ltd., Paris-based Total SA and Chevron Corp.’s Gorgon project.

Spot cargoes of LNG to China are about one-quarter cheaper than pipeline supplies of natural gas, despite price cuts in November aimed at stimulating demand for domestic output, ENN Energy said earlier this month. Asian spot LNG prices fell below $5 for the first time in January since at least 2010, according to New York-based Energy Intelligence Group.

ENN is now building an LNG receiving terminal in Zhoushan, in eastern China’s Zhejiang province, to receive imported natural gas.

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