Chinese regulators vetting Royal Dutch Shell’s proposed merger with BG Group are pressing the Anglo-Dutch company to sweeten long-term gas supply contracts in a move that could cast new doubt over the near-term benefits of the $70 billion tie-up.

For China, the opportunity to re-negotiate existing liquefied natural gas (LNG) supply contracts with Shell, which combined with BG would supply around 30 per cent of its imports by 2017, comes at an ideal time because the world’s top energy consumer faces a large surfeit over the next five years.

For Shell, any revision of the contracts with China could dilute the near-term financial benefits of a merger that has already raised concern among some investors and analysts because of stubbornly low oil prices.

Shell declared it wanted to become the world’s top trader of LNG when it agreed on a takeover of BG in April. It expects global demand for LNG to grow by nearly five per cent per year by 2030. Power plants, industries and vehicles are shifting to the less polluting gas, which once extracted from the ground is cooled and liquified, loaded onto ships before being turned back into gas at its destination.

Seeking to lower import volumes by extending the term of existing deals

The proposed Shell-BG tie-up has already won mandatory approvals from Brazil and the European Union. It secured clearance yesterday from one of two Australian regulators but still requires the green light from China.

Senior Shell officials had expected China’s anti-trust authorities to put forward some demands before approving the deal just as they did ahead of Glencore’s $29 billion merger with Xstrata in 2013.

The Swiss-based mining and trading giant agreed to sell its Las Bambas copper mine in Peru to China’s MMG Ltd for $7 billion in exchange for China’s approval.

As the Chinese regulatory approval process entered its third and final 60-day phase earlier this month, Beijing broached with Shell a request to review prices in LNG contracts worth tens of billions of dollars annually with its energy champions China National Petroleum Corporation (CNPC), China National Offshore Oil Corporation (CNOOC) and Sinopec, industry sources close to the talks told Reuters.

Negotiators from China’s ministry of commerce (MOFCOM) are also seeking to lower import volumes by extending the term of the existing deals with Shell as well as other suppliers in order to thin out deliveries given low demand, according to several sources.

Some Shell officials fear that a revision of the terms of the contracts could create a ripple effect around the world, further eroding gas prices.

The combined Shell-BG group is planned to sell around 15 million tonnes of LNG per year by 2018 to China’s major importers, around one third of China’s contracted volumes.

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