China's Zhenhua Oil forms LNG investment, trading business unit

BEIJING, (Reuters) - China's Zhenhua Oil Corp, a subsidiary of Chinese defence conglomerate Norinco, has set up a new business unit to invest in liquefied natural gas (LNG) terminals and trade the fuel to help feed the country's thirst for the cleaner-burning fuel.

A LNG team of five employees was set up in June at the company's Beijing headquarters, led by Yu Fengwei, previously the company's head of crude oil trading, according to multiple industry sources with knowledge of the matter.

The team has set its sights on breaking into spot LNG trade and will explore deals with its global oil partners to secure gas supplies, said one of the sources, with direct knowledge of the company's plan.

"As Zhenhua does not have any LNG offtake deals to begin with, one of the ideas is to swap the company's oil assets outside China with partners' gas supplies," said the source, without giving further details.

In the domestic market, the company is looking to invest in LNG receiving facilities by teaming up with local government-backed piped gas distributors.

All these proposals are at very early stage and will take time to materialize, said the sources, who declined to be named as they are not authorized to speak to press.

A Zhenhua spokesman declined comment.

Zhenhua, a unit of defence conglomerate China North Industries Group Corp (NORINCO), operates about a dozen oil and gas exploration and production projects globally, according to its website.

Its main operations are in Iraq, including a stake in the Ahdab oilfield. In May, the firm entered a new production contract to develop the East Baghdad oilfield.

Zhenhua, the smallest Chinese state-run oil and gas company, has sought to expand and upgrade its business. It has gained a foothold in China's independent oil refining market by supplying some 6.5 million tonnes of crude in 2017.

China's natural gas demand has soared following a government-mandated switch from coal to the cleaner-burning fuel to reduce the country's air pollution. The increased consumption in homes and by industry pushed the country to overtake South Korea as the world's second-biggest LNG importer.

(Reporting by Chen Aizhu; Editing by Christian Schmollinger)