Analysis - Chinese LNG buyers expanded trading after adding more contracts in the US and Qatar
SINGAPORE/LONDON (Reuters) - Chinese liquefied natural gas (LNG) importers are establishing or expanding sales offices in London and Singapore to better manage their growing and diversified supply portfolios in an increasingly volatile global market.
The increased trading presence of Chinese importers puts them in direct competition with such global heavyweights as Shell, BP, Equinor and TotalEnergies in a market that doubled in value to $450 billion last year, according to the International Energy Agency.
About a dozen Chinese companies have been expanding sales teams or adding new offices, with privately held ENN Natural Gas and state-owned China National Offshore Oil Corp (CNOOC) the latest to plan offices in London and energy company China Gas Holdings setting up operations in Singapore. company officials and traders said.
Chinese gas importers have also increased long-term LNG contracts with suppliers from Qatar and the US by nearly 50% to more than 40 million metric tons per year (mtpy) from the end of 2022, with plans to add more volumes from the two countries. from Oman, Canada and Mozambique, traders and analysts said. "We will see a paradigm shift in Chinese companies from being complete net importers to (being) bigger international and domestic trading players," said Toby Copson, Trident LNG's Shanghai-based head of global trading.
State-owned PetroChina, Sinopec, Sinochem Group and CNOOC are already actively trading volatility to capitalize on their long portfolios, Copson said. China is vying with Japan to be the world's largest importer of LNG, although it is unclear how much surplus or other volumes Chinese companies may have available for trading.
PetroChina International (PCI), PetroChina's trading arm and China's largest gas trader, with a 100-strong global team in Beijing and four other international offices, imported or traded about 30 million tonnes of LNG last year.
Zhang Yaoyu, global head of LNG trading at PCI, declined to comment on the company's trading volume, but said trading is part of the company's overall strategy. Security of supply is still at the core of our business activities. The ability to trade is one of the means to help us better deal with market fluctuations,” Zhang said. By 2026, Chinese companies are expected to have contracted LNG supplies of more than 100 million tons per year. That could mean a surplus of up to 8 million tonnes that year, according to consultancy Poten & Partners, or a deficit of 5 million to 6 million tonnes, according to estimates by price agency ICIS.
Either way, China's rising domestic production and more gas from Central Asia and Russia provide a sufficient fuel base for Chinese gas companies to trade or swap costs from the US and other portfolios when arbitrage opens or it makes market sense. "I could see China becoming a seasonal seller to places like Southeast Asia, South Korea and Japan, as well as Europe," said Jason Feer, head of business intelligence at Poten & Partners.
U.S. LNG contracts are free on board (FOB), openly with no destination restrictions, and consultant Rystad Energy estimates that U.S. volume will account for a quarter of China's long-term contracts by 2030. However, Qatar, which will be China's largest supplier for 2026, offers traditional LNG contracts that are limited to one destination or country.
BIG PRESSURE IN THE RELATIVE MARKET
Last year's Russian invasion of Ukraine forced European buyers to increase LNG imports by two-thirds to replace lost Russian gas. This created an outlet for companies with available supplies, and Chinese, Japanese and South Korean companies pounced as global LNG prices soared and the market doubled in value.
European users have also been reluctant to sign long-term contracts because of decarbonisation targets, and Asian gas traders and importers sent LNG to Europe during the spring and summer to fill storage tanks there, Feer said.
PCI also signed an agreement in May to use Rotterdam's Gate regasification terminal for 20 years, a first for a Chinese company in Europe. These market openings and a more liberalized domestic gas market have also prompted smaller Chinese gas distributors and importers to expand into the trading space.
For example, China Gas Holdings, which has signed contracts for 3.7 million tonnes a year of US LNG, is hiring its first two traders for a new office in Singapore and is looking to secure more contracts, a company executive told Reuters. It joins ENN, Beijing Gas, Zhejiang Energy and JOVO Energy in establishing a business presence in Southeast Asia's energy hub.
"Compared to Japanese firms, Chinese firms are much more aggressive in expansion, with PCI and Unipec among the highest paying, offering comparable packages to the global majors," said a Singapore-based recruiter. Reporting by Chen Aizhu and Emily Chow in Singapore and Marwa Rashad in London; Additional reporting by Yuka Obayashi in Tokyo; Editing by Tom Hogue
In recent years, China has consolidated its position as a world leader in energy consumption and production. Among the various energy sources, liquefied natural gas (LNG) has emerged as a cleaner and more flexible alternative. This shift in focus has led to an expansion of China's LNG business activities, with significant increases in contracts from the United States and Qatar. In this article, we delve into China's growing LNG market and analyze how the addition of additional contracts from these key suppliers has moved the nation's LNG business.
Growth of China's LNG market
China's rapid industrialization and urbanization has led to a substantial increase in energy demand. This demand is met by a diverse energy mix, with LNG playing a key role. The shift to LNG is driven by its lower carbon emissions, cost-effectiveness and versatility. As the world's largest importer of LNG, China's voracious appetite for the energy source has encouraged global suppliers to forge stronger ties.
Expansion of LNG contracts from the United States
The United States transformed its energy landscape with the shale gas revolution and became a major exporter of LNG. China's strategic decision to diversify its LNG supplier portfolio has led to an increased focus on US LNG contracts. The US's geographic advantage, combined with its competitive pricing and long-term supply commitments, has endeared it to Chinese buyers.
Qatar LNG contracts strengthening bilateral ties
Qatar, another major player in the global LNG market, occupies a prominent position in China's energy strategy. The two countries have established strong bilateral relations, with energy cooperation at the fore. Qatar LNG offers China a stable source of supply, ensures energy security and at the same time promotes economic cooperation. The recent expansion of Qatar's LNG contracts further cements this relationship.
Implications for China's Energy Security
A diversified portfolio of LNG suppliers is a strategic step to increase China's energy security. Relying on a single source can leave you vulnerable to supply disruptions. By adding more US and Qatari contracts to its portfolio, China can mitigate risks and ensure consistent LNG supplies, even in times of geopolitical uncertainty.
Ecological aspects and the transition to clean energy
China's increased reliance on LNG is consistent with its commitment to environmental sustainability. LNG produces fewer emissions compared to other fossil fuels, contributing to China's efforts to reduce air pollution and meet climate targets. The adoption of LNG as a transitional energy source supports China's transition to cleaner alternatives such as renewable energy.
China transition to clean LNG energy
China's pragmatic approach to diversifying its LNG supply base by adding additional US and Qatari contracts represents a strategic move in the nation's energy landscape. This expansion not only ensures stable energy supplies, but also strengthens bilateral ties and contributes to environmental protection goals. As China continues to reshape its energy future, its progressive LNG business activities will undoubtedly play a critical role in shaping the global energy market in the coming years.
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