From importer to dealer
How China is seizing control of the global LNG market
2/21/2023, 4:31 p.m
If German energy companies want to secure future gas supplies from the USA, for example, they may not have to turn to American producers, but to Chinese intermediaries. China has already secured a large part of global gas production with long-term contracts.
In its efforts to cover the gas supply for the coming years with the import of liquid gas, Germany will have to come to terms with a new player with interests of its own in the future: China is strategically expanding its role in the global LNG market – from a pure one Importer to the dominant middleman. According to data from the analysis company BloombergNEF, Chinese companies have already concluded long-term supply contracts for this year and the years to come like no other country. This trend, a report says, is likely to continue in the coming years and ensure that Chinese energy traders will dominate the global LNG market for decades to come.
After the abrupt end of Russian gas deliveries to Germany and large parts of Europe, consumer countries raced to capture the limited reserves of the major producing countries. With the support of the federal government, German companies are trying to get delivery commitments from the Gulf state of Qatar, among other places. However, the Chinese energy companies are considerably more successful. The state-owned oil and gas giant Sinopec agreed one of the largest LNG deals of all time with Qatar last year. According to BloombergNEF, China has signed more contracts with US exporters, Germany’s most important LNG suppliers to date, than any other country in the last two years.
With these large amounts of gas, China obviously wants to secure its own energy needs. In addition, the country’s energy companies are also increasingly becoming traders who sell gas on a large scale to the highest bidder when their own needs are covered. Last year, the Chinese economy suffered badly from the harsh corona lockdown, and energy demand fell. As a result, according to figures from the Chinese gas supplier ENN, China sold at least 5.5 million tons of LNG on the world market.
With this gas, which corresponds to around six percent of the trading volume on the global spot market, China had a decisive influence on prices, which first shot up to extreme heights last year as a result of the Russian supply freeze to Europe and then collapsed again. “Had China’s gas demand not fallen in 2022, the global gas market – and Europe’s energy security – would be in a much more dangerous position,” Bloomberg quoted Credit Suisse energy analyst Saul Kavonic as saying.
China’s economic development and the energy requirements of the second largest economy that depend on it have been an important factor for many commodity prices, such as oil, for many years. In the event of unexpected fluctuations in China’s economy, this also resulted in volatile prices on the world market. With so much gas secured over the long term, China is making itself less dependent on the whims of the commodity markets. However, by throwing gas onto the world market in large quantities or withdrawing it according to its own needs, it could exacerbate price fluctuations for other importers such as Germany in the future.
That China’s gas purchases are part of a long-term strategy can be seen, among other things, from the fact that Chinese energy companies such as Sinopec and PetroChina have set up corresponding energy trading teams in important trading centers such as London and Singapore. According to “Bloomberg”, the likelihood is growing that European traders who want to buy gas from the USA for Germany, for example, will have to turn to their Chinese colleagues in the future.