China is enthusiastically accumulating natural gas, encouraging importers to persist in finalizing agreements even after the resolution of a worldwide energy crisis. Governmental support for state-owned purchasers to commit to lasting contracts and even invest in export infrastructure remains strong, aiming to fortify energy security till mid-century, as per individuals who have conferred with policymakers. China is expected to ascend as the world’s leading importer of liquefied natural gas (LNG) by 2023. For the third consecutive year, Chinese firms have consented to procure more LNG over the long term than any other nation. China is strategizing for the long term to circumvent future energy scarcities while also fuelling economic growth.
Long-term LNG agreements are appealing because they guarantee deliveries at a relatively stable price compared to the volatile spot market, which saw gas prices skyrocket in the wake of Russia’s invasion of Ukraine. Toby Copson, global head of trading and advisory at Trident LNG in Shanghai, noted, “Energy security is always a priority for China. Having a plentiful supply at hand allows them to handle future unpredictability. I expect to see more of this.” China Inks More Extended LNG Agreements Than Competitive Importers. These contractual activities will underpin worldwide export projects, reinforcing the role of marine fuel in the energy portfolio. As providers vie to attract Chinese importers, Beijing’s market influence is anticipated to grow. China initiated its pursuit for long-term contracts in 2021, following an improvement in US relations. Although demand was reduced last year due to Covid limitations and a little fall in imports, Chinese purchasers rekindled their interest when the invasion of Ukraine damaged the pipeline that carried gas to Europe.
The resulting surge in prices and global competition for the super-cooled fuel provided a swift lesson on the necessity for stable supplies. Part of China’s energy security strategy includes diversifying imports across various countries to insulate against future geopolitical disruptions. India and other importers are also looking to negotiate more contracts in order to avoid future deficits and lessen their reliance on spot deliveries. However, China is outpacing these efforts by securing contracts at a faster rate. China accounted for thirty-three percent of the long-term LNG volumes negotiated so far this year, according to calculations by Bloomberg.
Last month, state-owned China National Petroleum Corp. finalized a 27-year agreement with Qatar and purchased a stake in the exporter’s extensive expansion project, while ENN Energy Holdings Ltd. penned a decades-long contract with US developer Cheniere Energy Inc. Supplies from both agreements are expected to commence by 2026. Additional agreements are in the pipeline, with negotiations extending from Singapore to Houston. State-owned behemoths such as Cnooc Ltd. and Sinopec are in discussions with the US, while smaller companies like Zhejiang Provincial Energy Group Co. and Beijing Gas Group Co. are also scouting for deals, according to traders.
Qatar is in discussions with several Chinese buyers for sales contracts potentially exceeding 20 years, the traders reported. Sinopec is among the companies negotiating investment in a gas development in Saudi Arabia, possibly encompassing the construction of export facilities, as reported by Bloomberg in May. These agreements will supply the approximately dozen new import terminals expected to commence construction across China’s coastal cities this decade. China’s LNG imports could double to as much as 138 million tons by 2033, as per Norwegian consultant Rystad Energy.
“At present, more than half of China’s LNG demand from 2030 to 2050 remains uncontracted,” remarked Xi Nan, a Rystad analyst. The government isn’t obligating companies to finalize deals, and traders will only endorse agreements with attractive prices, the traders noted. Chinese buyers are also leveraging new LNG contracts to broaden portfolios and unlock profitable trading opportunities.
China’s LNG Imports Projected to Double in the Next Decade. However, the optimistic demand forecast isn’t assured, particularly as China enhances gas production domestically, and overland shipments from Russia may increase if new pipelines are constructed. An oversupply risk arises as the likelihood of LNG import terminals sitting idle more often grows, cautioned Cnooc senior analyst Xie Xuguang last month. However, the recent history of power outages and shortages has shifted the perspectives of China’s policymakers, who now prioritize energy security over potential oversupply risks faced by fuel importers, as per traders privy to the government’s strategy.
A coal deficit — China’s principal fuel for power generation — prompted temporary electricity curtailments to factories in 2021, while a drop in hydropower output resulted in a shortage in 2022, slowing economic growth. In response, the country pledged to augment mining capacity, and production has climbed to record heights, adequately stocking storage sites and reducing imports last year.
Presently, policymakers aim to replicate this strategy with gas. Beijing is urging energy giants to also increase domestic gas production, reducing drilling costs to boost self-sufficiency, according to sources close to the government. Given that new pipelines are under discussion but have not yet been concluded, Chinese buyers continue to seek for reliable supplies from the LNG market. The more agreements China signs, the more control it has over the world’s LNG supply. As the new agreements come into effect this decade, China will likely become an even bigger actor in the market balancing process by reselling its contractual cargo to the most desperate purchasers when domestic demand is low. Rystad’s Xi commented, “Larger and more established buyers usually possess greater bargaining power compared to smaller or emerging players. Continuing to ink long-term contracts is a logical decision.
