(Bloomberg) — A rush by China to sign new long-term liquefied natural gas contracts promises to give the nation even more control of the world market at a time when competition for cargoes is booming.
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Chinese companies complete the most LNG purchase contracts of any nation and are increasingly becoming the industry’s most important import intermediary. Chinese buyers resell many of the shipments to the highest bidders in Europe and Asia, effectively taking control of a hefty chunk of supply.
China-based companies account for about 15% of all contracts that will start supplying LNG by 2027, according to an analysis of BloombergNEF data. This trend will only increase as companies look to enter into longer-term agreements that will effectively give their dealers fuel control for decades.
From copper to rare earths, China is expanding its grip on commodities critical to both the country’s economy and the world’s transition away from the dirtiest fossil fuels. China has become one of the world’s top LNG importers almost overnight after Beijing sought to ensure energy security.
The Asian nation’s position in the market could be a double-edged sword: China can offer stability in times of global shortages, but it could hold back supply and spike prices when demand needs to be met domestically.
“China is evolving from a fast-growing import market to a more flexible role with an increased ability to balance the global LNG market,” Shell Plc said in its annual LNG Outlook report released last week.
China’s influence was clearly visible during the global energy crisis last year, when strict Covid guidelines and high spot prices dampened the country’s demand and prompted it to divert unwanted supplies to regions in need.
“Without lower Chinese LNG demand in 2022, the global gas market – and Europe’s energy security – would be in a far more dangerous state,” said Saul Kavonic, an energy analyst at Credit Suisse Group AG.
swing supplier
The country is estimated to have resold at least 5.5 million tonnes of LNG last year, according to ENN Energy’s January monthly research report. That equates to about 6% of the total spot market volume, making the country a huge swing supplier.
China has signed more deals with U.S. export projects than any other nation since 2021, according to BloombergNEF data, and Sinopec inked one of the LNG industry’s biggest deals with Qatar last year. More deals are on the horizon as firms are in talks with exporters in the US and are also in talks with Qatar, Oman, Malaysia and Brunei, according to people with knowledge of the talks.
China’s long-term contracted volume is expected to rise 12% in 2023 as deals begin in the US and Qatar, BNEF analysts said in a January report. The intensity of this year’s energy shortages, in turn, could depend on how much China decides to sell overseas.
A key factor will be the extent of China’s economic recovery. The market fears a strong recovery will limit global LNG supplies and lead to further price hikes, with the International Energy Agency listing the nation as one of the “key exogenous risks” this year. However, the extent of the recovery in China’s LNG demand is unclear given strong pipeline deliveries and domestic production.
trading competence
Only in the last decade have large importers of LNG also become sellers. With the advent of flexible shipments from new exporters like the US and the proliferation of nimble dealing desks, utilities are now able to divert shipments when domestic demand is weak.
Japan, traditionally the world’s largest LNG buyer, has become a major trader of the fuel. But its influence is expected to wane as China is likely to become the world’s largest importer this year as it seeks to expand its trade expertise.
State-owned energy companies such as PetroChina and Sinopec have set up trading units from London to Singapore. This means that if a European importer wants to buy a shipment from the US, for example, they may increasingly have to do so through a Chinese trading desk.
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