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China To Seal Most LNG Purchase Agreements of Any Country

COMMODITIES(B-Trams):At a time when there is a lot of competition for cargoes, China’s rush to sign new long-term liquefied natural gas (LNG) deals promises to give the country even more control over the global market.

The majority of LNG purchase agreements are being signed by Chinese businesses, which are increasingly emerging as the sector’s primary import intermediary. Many of the cargoes are being resold by Chinese buyers to highest bidders in Europe and Asia, effectively taking control of a significant amount of supply Read More …

According to a BloombergNEF data analysis, approximately 15% of all contracts that will begin delivering LNG supply through 2027 are held by Chinese companies. This pattern is likely to continue as businesses try to secure additional long-term contracts that will effectively grant their traders control over the fuel for decades.

The Asian nation’s market position could be advantageous in both directions: China can provide stability during global shortages, but if domestic needs must be met, it may withhold supply and drive up prices.

According to Shell Plc’s annual LNG outlook report, which was made public last week, “China is evolving from being a rapidly growing import market to playing a more flexible role with an increased ability to balance the global LNG market.”

Last year, during the global energy crisis, China exerted a significant amount of influence because of its stringent Covid policies and high spot prices, which reduced the country’s demand and caused it to divert unwanted shipments to regions that required them more.

Saul Kavonic, an energy analyst at Credit Suisse Group AG, stated, “The global gas market and Europe’s energy security would be in a far more perilous state if not for the lower Chinese LNG demand in 2022.”

Swing supplier According to ENN Energy’s January monthly research report, the nation resold at least 5.5 million tons of LNG last year. That is comparable to generally 6% of absolute spot market volume, making the country a huge swing provider.

According to data from BloombergNEF, China has signed more contracts with US export projects than any other nation since 2021. Last year, Sinopec signed one of the largest LNG deals ever with Qatar. According to people with knowledge of the discussions, businesses are in talks with exporters in the United States and are also locked in talks with Qatar, Oman, Malaysia, and Brunei. More deals are expected.

According to a January report by BNEF analysts, China’s long-term contracted volume is likely to increase by 12% in 2023 as agreements begin from the United States and Qatar. The extent to which China decides to sell into the overseas market may again determine the severity of the energy shortages this year.

The extent of China’s economic recovery will be a significant factor. The International Energy Agency has named the nation one of the “key exogenous risks” for this year, and the market is concerned that a strong rebound will result in a tightening of global LNG supply and a subsequent price increase. However, in light of robust pipeline deliveries and domestic production, the magnitude of China’s LNG demand rebound is unknown.

Expertise in trading Not until the last ten years have major LNG importers also become sellers. Utilities are now able to divert shipments when domestic demand is low thanks to the proliferation of nimble trading desks and flexible supply from new exporters like the United States.

Japan, which has traditionally been the world’s largest LNG buyer, is now a significant LNG trader. However, as China seeks to expand its trading expertise and becomes the world’s top importer this year, its influence is likely to diminish.

From London to Singapore, trading units have been established by major state-owned energy companies like PetroChina and Sinopec. As a result, a Chinese trading desk may become increasingly necessary for an importer from Europe who wants to purchase a shipment from the United States, for instance.

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