China’s Bid For Energy Security Fuels Long-Term LNG Buying Spree

• China is at the forefront of long-term LNG contracting, prompted by energy security concerns and last year's energy crisis, signing deals equivalent to one-third of all such contracts globally this year.
• Major Chinese companies, including Sinopec and CNPC, are engaging in landmark agreements with Qatari and American LNG developers, securing supplies for up to 27 years.
• China is set to rebound in demand and is prioritizing long-term LNG supply deals to manage future volatility and safeguard its growth targets.

Long-term contracts for LNG supply are back after a year of record-high prices and energy crises. 

Efforts to protect LNG imports from the volatility in spot prices amid the many uncertainties in the natural gas market and geopolitics, and the increased attention to energy security has prompted all gas importers – including a previously reluctant Europe – to sign more long-term LNG deals in recent months.    

Leading the LNG contracting is China, a major gas consumer and importer, which has always looked to protect its energy security. Last year’s energy crisis put an additional emphasis on security of supply in China, which is now signing long-term LNG deals as if the energy crisis is still at its peak. 

China accounts for one-third of all long-term LNG contracts signed so far this year, according to estimates by Bloomberg. 

Long-term LNG contracting has seen a flurry of deals in recent months, including from buyers in Europe, where energy security has taken center stage at the expense of concerns about emissions from natural gas imports. 

For example, last month Germany signed a 20-year deal with U.S. firm Venture Global LNG to import 2.25 million tons of LNG per year from Venture Global’s third project, CP2 LNG, as Europe’s biggest economy is looking to secure gas supply after Russia stopped deliveries.   

Chinese buyers, for their part, have recently signed with Qatar the longest LNG term deals in the history of the industry while also discussing additional agreements with QatarEnergy and with U.S. LNG developers.  

China Petroleum & Chemical Corporation, or Sinopec, is in discussions with Saudi Aramco on the development of the giant Saudi gas field Jafurah, which could include the construction of an LNG terminal to export part of the gas, Bloomberg reported earlier this year. 

Sinopec already has a 5% stake in the development of the huge North Field East (NFE) expansion project in Qatar, the largest project in the history of the LNG industry. At the end of last year, QatarEnergy signed the longest-term contract in the history of the LNG industry in a deal to supply LNG to Sinopec for 27 years. 

Last month, QatarEnergy signed a similar deal with another Chinese energy giant. QatarEnergy signed in June definitive agreements with China National Petroleum Corporation (CNPC), covering the long-term supply of LNG to China and partnership in the North Field East LNG expansion project (NFE). Under the terms of the deal, Qatar will supply 4 million tons of LNG per annum from the NFE project to CNPC’s receiving terminals in China for 27 years.  

Apart from Qatar, China is looking to sign more long-term deals with the top LNG exporter, the United States. 

Just last week, Cheniere Energy signed a long-term deal with China’s ENN to deliver LNG to the Chinese buyer for more than 20 years—the second such deal between Cheniere and ENN. 

“At present, China is moving forward with the implementation of ‘carbon peaking & carbon neutrality,’ further accelerating the energy transformation, and China’s natural gas market is full of potential,” said ENN Natural Gas chairman Wang Yusuo. 

Despite last year’s unprecedented decline in Chinese natural gas consumption and imports, China is looking to secure its long-term energy needs and avoid energy and power shortages that could undermine its growth targets. 

Lockdowns and slower economic growth led last year to the first annual drop in China’s gas consumption since 1990, while China’s LNG imports fell by 20%, mainly due to reduced demand and high LNG spot prices.  

This year, Chinese demand and LNG imports are set to rebound, although they are unlikely to reach pre-Covid levels, analysts say. 

Meanwhile, long-term LNG supply deals remain a priority for China. 

“Having ample supply in their portfolio allows them to manage future volatility,” Toby Copson, global head of trading and advisory at Trident LNG in Shanghai, told Bloomberg. 

“I would expect to see more.” 

By Tsvetana Paraskova for Oilprice.com

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