China is making purchases of natural gas, and officials are happy that importers will continue to make deals even after the global energy crisis has eased.
The government continues to support efforts by state buyers to sign long-term contracts and even invest in export facilities to bolster energy security by mid-century, according to people who have had meetings with officials. politicians
The nation is on track to be the world’s top importer of liquefied natural gas by 2023. And for the third year in a row, Chinese companies are agreeing to buy more long-term than any other country, according to data compiled by Bloomberg News.
China is looking to the future to avoid a repeat of energy shortages, while seeking to boost economic growth. Long-term LNG contracts are attractive because shipments are promised at a relatively stable price compared to the spot market, where gas surged to a peak after Russia’s invasion of Ukraine.
“Energy security has always been a priority for China,” said Toby Copson, Trident LNG’s global head of trading and advisory in Shanghai. “Having a broad supply in their portfolio allows them to manage future volatility. I would expect to see more of that.”
Efforts to make deals will help support global export projects, strengthening the role marine fuel will play in the energy mix. And as suppliers move to attract Chinese importers, Beijing’s influence in the market will increase.
China began its push for long-term contracts in 2021, after relations with the US improved. While imports fell last year in part due to weaker demand amid Covid restrictions, Chinese buyers renewed momentum after Ukraine’s invasion cut off pipeline gas to Europe .
The resulting high prices and global competition for the super-cooled fuel provided a quick lesson in the need for stable supplies. Part of China’s push for energy security is to diversify imports among several countries as a cushion against further geopolitical disruptions.
Several other importers, including India, are also looking to sign more deals to avoid future shortages and curb reliance on spot deliveries. However, China is blocking contracts at a much faster rate. So far this year, 33% of long-term LNG volumes signed have gone to China, according to Bloomberg calculations.
Last month, state-owned China National Petroleum Corp. sealed a 27-year deal with Qatar and took a stake in the exporter’s massive expansion project, while ENN Energy Holdings Ltd. signed a decades-long contract with US developer Cheniere Energy Inc. Deliveries from both contracts are expected to begin as early as 2026.
More deals are being floated as negotiations span boardrooms from Singapore to Houston. State-owned giants such as Cnooc Ltd. and Sinopec, are in talks with the US, while smaller companies such as Zhejiang Provincial Energy Group Co. and Beijing Gas Group Co. they are also looking for bargains, according to traders.
Qatar is in talks with several Chinese buyers for sales contracts that could last more than 20 years, traders said. Sinopec is among companies in talks to invest in a gas development in Saudi Arabia, which may include building facilities to export the fuel, Bloomberg reported in May.
The deals will help fuel roughly a dozen new import terminals to begin construction in China’s coastal cities this decade. The country’s LNG imports could rise to 138 million tonnes by 2033, roughly double current levels, according to Norwegian consultancy Rystad Energy.
“Currently, more than half of China’s LNG demand between 2030 and 2050 remains uncontracted,” said Xi Nan, an analyst at Rystad.
The government does not force companies to sign deals, and traders will only sign deals that have attractive prices, traders said. Chinese buyers are also using the new LNG contracts to expand portfolios and unlock lucrative business opportunities.
However, the bullish outlook for demand is far from certain, especially as China ramps up gas production at home, while overland shipments from Russia could increase if new pipelines are built. An oversupply raises the risk that LNG import terminals will be idle more often, Cnooc senior analyst Xie Xuguang warned last month.
However, power outages and shortages in recent years have changed the thinking of China’s policymakers, who now favor energy security over fuel importers facing a potential oversupply, according to traders briefed on the government’s strategy.
A shortage of coal, China’s main fuel for power generation, led to widespread electricity restrictions at factories for a brief period in 2021, while a drop in hydropower production led to a shortage by 2022, slowing economic growth. In response, the country pledged to increase mining capacity and output has risen to record levels, keeping storage sites well-stocked and reducing imports in the past year.
Now policymakers want to do the same with gas. Beijing is pressuring energy giants to also increase gas production at home, cutting drilling costs to increase self-sufficiency, according to people close to the government.
“With new pipelines being discussed but not yet finalized, Chinese buyers are still looking to secure supplies” from the LNG market, said Michal Meidan, head of China Energy Research at the Institute of Oxford Energy Studies.
The more deals China signs, the more control it has over global LNG supplies. China already plays a key role in balancing the market, reselling its contracted shipping to needier buyers when demand at home is weak, and that trend will expand as new deals begin this decade.
“Larger, more established buyers tend to have greater bargaining power compared to smaller or emerging players,” Rystad’s Xi said. “Continuing to sign long-term contracts is a logical decision.”
–With assistance from Ruth Liao, Anna Shiryaevskaya and Dan Murtaugh.
