China May Likely To Take Control of LNG Market, Amid Global Boom

SHANGHAI: 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, making them increasingly important import intermediaries in the sector.

Many of the cargoes are being resold by Chinese buyers to the highest bidders in Europe and Asia, effectively taking control of a significant amount of supply.

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.

China is expanding its influence over commodities like copper and rare earths, which are crucial to the country’s economy and the world’s move away from the dirtiest fossil fuels.

As a result of Beijing’s push to ensure energy security, China has nearly overnight become one of the world’s largest LNG importers.

The Asian nation’s market position may have advantages and disadvantages. 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.”

According to ENN Energy’s January monthly research report, the nation resold at least 5.5 million tonnes of LNG in the previous year. That amounts to roughly 6% of the total volume of the spot market, making the nation a significant swing supplier.

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 deals ever made in the LNG industry 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 from BNEF analysts, China’s long-term contracted volume is likely to rise by 12% in 2023 as agreements start with the US 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 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.