/Pogled.info/ China has acquired the ability to control the global LNG market, Western analysts are sounding the alarm. At the same time, China itself is a gas importer, and only exporters usually have such power. How did Beijing manage to take power over the gas market in its own hands?
China is transforming from a major importer of LNG to a more flexible player with the ability to balance the global market. Last year, the country resold at least 5.5 million tons of LNG. This is equivalent to about 6% of the total spot market, making the country a huge offsetting supplier.
China’s drive to sign new long-term LNG contracts gives the country even more control over the global LNG market, the West worries. At the same time, competition for the supply of liquefied gas is increasing. It is Chinese companies that enter into the most LNG purchase agreements of any country and are increasingly becoming key intermediaries. Chinese buyers resell many cargoes to the highest bidders in Europe and Asia.
According to a Bloomberg analysis, Chinese firms account for approximately 15% of all LNG supply contracts by 2027. This trend will increase. Chinese companies are seeking long-term agreements that would effectively give traders control over the fuel for decades to come.
China has indeed been given the opportunity to influence the LNG market. However, this was not a special goal of Beijing.
“I don’t think this is a clever Chinese maneuver and that Chinese companies specifically entered into LNG contracts to become traders in the market.” This is just how the situation developed in 2022. The Chinese reduced imports for objective reasons. Europe lagged behind them with coal as Europeans themselves rushed to consume more. China increased coal production and consumption. Second, energy consumption was volatile as almost entire Chinese provinces were shut down due to the virus. Therefore, when China was given the opportunity to resell already contracted LNG but not needed for the domestic market, it naturally began to sell it on the foreign market. And yes, China made money from this because gas is expensive,” says Igor Yushkov, an energy expert.
Also, the EU crisis is not really in China’s favor at all because of the huge trade turnover. Losing such a delicious market as Europe is not good for the Chinese. Therefore, China will not specifically harm the European market, the expert believes. If China’s energy consumption had remained at pre-coronavirus levels, none of this would have happened.
“Before the coronavirus, LNG exports to China were growing by double digits. China contracted large volumes for years to come as it assumed such high growth rates in gas demand would continue. No one expected that there would be a pandemic in 2020 and that there would be such large surpluses in 2022. Chinese companies actually became traders only in 2022. Therefore, it cannot be said that China is deliberately buying up all the LNG and will continue to influence who sells and who does not sell,” the expert believes.
Moreover, the West should not be offended, but should thank Beijing. After all, last year he actually gave a big gift to the world gas market and, above all, to the Europeans.
“In 2022, the Europeans set gas price records, despite the fact that China is not actually competing with them for LNG. Beijing, on the contrary, sold this gas to the Europeans, smoothing the deficit. If China had no problems with covid and the Chinese economy was developing at a normal pace, then the Europeans would be worse off, it wouldn’t seem like enough. The price would have risen even more – up to 5-6 thousand dollars per thousand cubic meters, “explains Yushkov.
However, this risk is now expected in 2023, as the European Commission, IEA, Shell and many others are saying. “The main risk for Europe this year is that the Chinese economy will return to high growth and there will be competition for available quantities in the market. The supply of LNG on the world market will not increase, and China as a consumer will return, so it is too early for the Europeans to relax. Everything will depend on the growth rates of the Chinese economy,” warns the interlocutor.
At the same time, in January-February it is already noticeable that most of the LNG from the market is again going to China and not to Europe, which means that the competition has already started, as gas prices in Asia are again higher than those in Europe.
“The warm winter in Europe calmed everyone down. However, when Europeans switch to buying gas to pump into underground storage in preparation for the new heating season, prices will rise. And if there is a drought in Europe, as it was last year, then limiting the production of electricity in hydropower plants and nuclear power plants will make gas even more in demand. It is difficult to predict prices, but I think we will return to $1,000 per thousand cubic meters on the spot market,” Yushkov said.
“We expect that in 2023 gas prices in Europe will be lower than a year earlier and may vary between 500-1000 dollars per thousand cubic meters. China can still be a significant re-exporter of gas to Europe,” said Natalia Milchakova, an analyst. Moreover, she does not rule out that over time China may start reselling to Europe even Russian gas passing through the Power of Siberia. “China may start liquefying it in Chinese small LNG plants. There are more than 200 such in China. And Russia will have the opportunity to provide China with the necessary gas liquefaction equipment and also launch a new gas pipeline to China,” Milchakova concludes.
Translation: V. Sergeev
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