Current natural gas market prices remain depressed compared to record prices in 2022. However, indications suggest that the current low prices may soon become a thing of the past, especially if China brings online its significant LNG regasification projects within the expected timeframe and continues to exert influence on global markets. European gas markets could potentially benefit from this development, although it will primarily be a boom for Chinese companies. This situation may not align with the preferences of Brussels, Berlin, or The Hague. Already in May Chinese natural gas imports (LNG and pipeline gas) increased by 17.3%. China’s General Administration of Customs reported that May natural gas imports hit 10.64 million tons, compared to 9.07 million tons May 2022. The customs agency also stated that China’s gas imports increased by 3.3% year-on-year to 46.29 million tons for Q1. The report indicated that China’s LNG imports increased also for the 3rd month in a row in April, hitting 4.77 million tons of LNG, an increase of 10.3% year-on-year.
At the same time that there is a sign of growing natural gas demand by China, a report by GlobalData states that China will be dominating the LNG regasification capacity additions in Asia. GlobalData states that 34% of all Asian additions will be in China. In its report, ‘LNG Regasification Terminals Capacity and Capital Expenditure (CapEx) Forecast by Region, Key Countries, Companies and Projects (New Build, Expansion, Planned and Announced), 2023-2027’, China is slated to add around 5.7 TCF from already received project approvals, while 2.1 TCF in capacity is currently in conceptual phases. As GlobalData analyst Bhargavi Gandham stated “China is rapidly expanding its LNG regasification capacity due to several factors, such as to meet ever-growing natural gas demand, mitigate environmental pollution, diversify its energy resources, and meet its carbon neutral objectives.” At present, the Tangshan II and Zhoushan II projects lead in terms of the LNG regasification capacity additions in China, with a capacity of 584.4 BCF by 2027 each. Tangshan II is an onshore regasification terminal planned in the Hebei province of China.
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China’s demand increase may be gradual, but looking at current developments, Europe’s gas customers will need to step up their game very soon, or pay hefty prices for spot cargoes. Where China is looking long-term, committing to natural gas usage beyond 2045-2050, Europe is still hesitant to close long-term contracts as politicians feel it doesn’t suit their energy transition strategy.
At the same time that China’s natural gas strategy is implemented and its gas-related infrastructure expanded, Beijing also is playing a much darker strategic game. Reports have emerged that China was informed about Russian invasion plans before Putin decided to invade Ukraine. Chinese President Xi Jinping has until now vehemently denied having knowledge about the invasion of Ukraine, but China’s energy dealings just before the invasion in February 2022 raises eyebrows. Chinese players, mainly LNG buyers have been extremely active in the six months before the invasion. International publication Foreign Policy (FP) reports, based on 600 LNG purchase transactions worldwide, that from September 1 2021 until February 2022, around 12 Chinese entities, such as state-owned companies China National Offshore Oil Corp. (CNOOC), Sinopec, and Sinochem, acquired 91% of all global LNG purchased worldwide under term deals (typically spanning four years or longer).
Even after the Russian invasion started, Chinese parties continued to close deals. Until April 2022, 57% of all LNG purchase deals were signed by Chinese parties. Between September 1 2021 and April 1 2022, around 23 million tons of LNG imports per year were agreed on. This volume is remarkable, knowing that between 2006 and 2020 Chinese deals averaged around 5 million metric tons per year, or 15% of the global market. The 2021-2022 buying spree was conducted by 11 different companies, of which 10 are either national or local government Chinese government-owned. This Chinese onslaught has soaked up near-term LNG supplies, mostly from Qatar, Russia, and the U.S.
These developments coincided with Gazprom, Russia’s state-owned gas producer’s strategy of cutting gas exports to Europe in 2021, while shutting off its European gas supplies after the invasion. This political cooperation between Moscow and Beijing is becoming clear. If the Chinese had not entered in full force in the 2021-2022 gas markets, Russian gas cuts to Europe would have had little effect, removing not only fears of supply shortages but also of an imminent energy crisis. The deep cooperation between China and Russia is clear, even before the Ukraine invasion. There is no irrefutable evidence, but all signs point to a Russian-Chinese cornering of the market, which was a pre-emptive strike on Europe’s energy sector.
As of now, Europe appears to be complacent and lacking proactive measures to counter the increasing collaboration between Beijing and Moscow. The practice of employing energy as a weapon is by no means a new one. The recent example of growing cooperation between Beijing and the Gulf Cooperation Council (GCC) in Saudi Arabia underscores that energy resources are no longer readily available for Europeans at a low cost. China and Russia are once again tightening their grip, raising the possibility of an impending and tumultuous European winter.
By Cyril Widdershoven for Oilprice.com
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1- Gas prices (piped and LNG) are governed by needs, weather and production capacity. If prices are depressed currently compared to 2022, soon things are going to change and prices will start to surge particularly when significant China LNG regasification projects come online. These are the mechanics of the global market.
2- China as the world’s largest economy based on purchasing power parity (PPP) and also the largest gas consumer and importer needs a lot energy (oil, gas, LNG and coal not to mention nuclear power and renewable energy) to keep functioning. Moreover, China’s economy would falter particularly without oil and gas. Its global oil strategy is, therefore, geared towards ensuring that this never happens.
3- The key to this is to secure as much of the world’s oil and gas resources as it can in as short a time as possible particularly as it foresees a continued ramping up of tension between it and the US over Taiwan. Beijing’s three big target countries in the Middle East in terms of oil and gas resources are Saudi Arabia, Iran, and Iraq. Its energy security is being consolidated globally by access to the energy reserves of Russia the world’s energy superpower and also through arrangements to protect the routes of oil supplies from the Gulf region. Moreover, China will soon sign a free trade agreement with the Gulf Cooperation Council (GCC) countries.
4- The suggestion that China’s energy dealings just before the flare up of the Ukraine conflict indicate that it knew about President Putin’s plans to attack Ukraine. It would have been very surprising if President Putin hasn’t informed Chinese President Xi Jinping in advance being close partners in a strategic alliance.
5- China’s and Russia’s economies complement each other brilliantly. China, the world’s largest economy is wedded to Russia the World’s energy superpower. Therefore, for Russia and China to aim to corner the global gas market is part of it.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert