China Is Buying Natural Gas Like There’s Still an Energy Crisis

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(Bloomberg) — China is on a natural gas shopping spree, and officials are happy that importers are continuing to strike deals even after the global energy crisis subsides.

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The government continues to support efforts by state-owned buyers to sign long-term contracts and even invest in export facilities, in order to boost energy security through the middle of the century, according to people who have held meetings with policymakers.

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The nation is on track to become the world’s largest importer of liquefied natural gas in 2023. For the third year in a row, Chinese companies have agreed to buy more of it on a long-term basis than any single country, according to data compiled by Bloomberg News.

China is looking well into the future to avoid a repeat of energy shortages, while also seeking to support economic growth. Long-term LNG contracts are attractive because shipments are promised a relatively fixed price compared to the spot market, where gas rose to an unprecedented level after Russia’s invasion of Ukraine.

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“Energy security has always been a priority for China,” said Toby Cobson, global head of trading and advisory at Trident LNG in Shanghai. “Having ample supply in their portfolio allows them to manage future volatility. I expect to see more.”

The deal-making efforts will help support global export projects, and enhance the role seaborne fuels will play in the energy mix. As suppliers move to court Chinese importers, Beijing’s influence in the market is set to increase.

China began its push for long-term contracts in 2021, after improved relations with the United States. While imports slumped last year in part due to weak demand amid Covid restrictions, Chinese buyers renewed their turn after the invasion of Ukraine cut the pipeline to Europe.

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The resulting high prices and global competition for cryogenic fuel provided a quick lesson in the need for stable supplies. Part of China’s push for energy security is to diversify imports among different countries as a safeguard against further geopolitical turmoil.

Many other importers, including India, are looking to sign more deals to avoid future shortages and reduce reliance on spot deliveries, yet China is closing contracts at a much faster pace. So far this year, 33% of long-term LNG volumes signed have gone to China, according to Bloomberg calculations.

Last month, the state-owned China National Petroleum Corporation struck a 27-year deal with Qatar and took a stake in the massive expansion project of the exporter, while ENN Energy Holdings Ltd. contract with the American developer Cheniere Energy Inc. Supplies from both contracts are scheduled to begin as early as 2026.

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More deals are in the offing as the boardroom negotiations stretch from Singapore to Houston. State-owned giants including Cnooc Ltd and Sinopec are in discussions with the US, while smaller firms such as Zhejiang Provincial Energy Group Co. and Beijing Gas Group Co., Ltd. Traders said Qatar is in talks with several Chinese buyers about sales contracts that could last for more than 20 years.

The deals will help fuel roughly a dozen new import terminals that are set to begin construction across China’s coastal cities this decade. The country’s LNG imports could rise to 138 million tons by 2033, about double current levels, according to Norwegian consultant Rystad Energy.

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“Currently, more than half of China’s LNG demand from 2030 to 2050 remains uncontracted,” said Xi Nan, an analyst at Rystad.

Traders said that the government does not force companies to sign deals, and traders will only sign agreements that have attractive prices. Chinese buyers are also using the new LNG contracts to expand their portfolios and unlock profitable business opportunities.

However, an upward demand outlook is far from assured, especially as China boosts gas production at home, while onshore shipments from Russia could rise if new pipelines are built. Oversupply increases the risk that LNG import terminals may be out of commission more frequently, Cnooc senior analyst Xie Xuguang warned last month.

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However, power outages and shortages over the past few years have changed the thinking of policymakers in China, who now favor energy security over fuel importers facing potential oversupply, according to traders briefed on the government’s strategy.

A shortage of coal – China’s primary fuel for power generation – led to widespread cuts in electricity to factories for brief periods in 2021 and 2022, slowing economic growth. In response, the country pledged to increase mining capacity, production rose to record levels, well stocked storage sites and reduced imports.

Now, policymakers want to do the same with gas. Beijing is pushing energy giants to raise gas production at home, and lower drilling costs to increase self-sufficiency, according to people close to the government.

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“Given that new pipelines are under discussion but not yet completed, Chinese buyers are still looking to secure supplies” from the LNG market, said Michel Meidan, head of China energy research at the Oxford Institute for Energy Studies.

In addition, the more deals China expects, the more control the country will have over global LNG supplies. China is already playing a major role in balancing the market, reselling its contracted cargo to neediest buyers when home demand is weak, with that trend set to expand as new deals kick off this decade.

“Larger, more established buyers usually have more negotiating power than smaller or emerging players,” said Xi of Rystad. “Continuing to sign long-term contracts is a logical decision.”

— With assistance from Ruth Liao, Anna Shiryaevskaya, and Dan Murtaugh.

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