China’s thirst for natural gas to test an already tight energy market this winter

As the prospect of a cold winter threatens to escalate an already struggling energy market, China’s efforts to secure the supplies it needs to get through the season could make matters worse.

China is the world’s largest energy consumer, and it has quickly evolved into a natural gas purchasing giant in recent years with disproportionate influence on global trade flows.

Environmental and safety restrictions on coal, maximum use of liquefied natural gas (LNG) exports around the world, and rising commodity prices have left the country short of energy supplies. Its thirst for natural gas was also supported by policies that spurred the switch from coal to gas and strong economic growth.

Power rationing in recent weeks has spread to more than half of the country’s provinces, “sending already hyperactive prices of coal and natural gas further north,” said Gavin Thompson, vice president Asia- Wood Mackenzie Pacific. “China’s leaders have undoubtedly anticipated it, but as the country’s energy crisis intensifies, the message to its public energy providers is clear: power outages this winter will not be tolerated. “

China’s National Development and Reform Commission (NDRC) last month released a statement saying it would help boost domestic natural gas production and help import more coal and spot LNG. In an emergency meeting, government officials also reportedly ordered state-owned companies to do everything in their power to secure energy supplies this winter.

“The impact of the power crisis in China is being felt around the world,” Thompson wrote in a blog post earlier this month. “As Beijing’s ‘at any cost’ directive pushes up the prices of coal and gas, governments, energy suppliers and customers in Asia and Europe are bracing for a harsh winter ahead.”

Coal prices have tripled this year, but some countries have been forced to burn more fossil fuels as major benchmarks for gas have quadrupled and other energy supplies have also fallen short. Europe and Asia are engaged in a fierce battle over LNG cargoes. A cold winter in China could create more problems in Europe, where industrial blackouts have occurred and energy suppliers have fallen back on the rally in commodities.

According to the NDRC, China has already purchased 174.4 billion cubic meters of gas for the heating season which runs from November to March. According to Bloomberg New Energy Finance, this is just below the current forecast demand for winter, which could be higher than expected. According to the Chinese Meteorological Administration, La Nina could bring a colder-than-normal winter.

What is the impact of China on US LNG exports?

Chinese buyers left the spot market amid the price spike that started to climb in late summer, but have since returned, despite LNG delivered to China prices above $ 20. / MMBtu.

“LNG buyers in China were hoping LNG prices would moderate, but now major Chinese LNG importers are entering the spot market, pushing up global spot prices for rare LNG,” Evercore analysts said. ISI led by Sean Morgan in a recent note to clients. .

[In the Know: Subscribe to NGI’s All New Access and gain the ability to read every article NGI publishes daily.]

Energy shortages in China also threaten to derail the country’s climate goals. Premier Li Keqiang said in a statement that the country must first assess the causes of the crisis before it can put in place a timetable for the peaks in carbon emissions.

The country has turned to natural gas to meet its environmental goals. Natural gas represented around 8% of consumption in 2019, but fuel continues to occupy a larger share of the country’s energy mix. The country boosted overall demand for super-refrigerated fuel in Asia as domestic production lagged behind. It is now set to become the world’s largest LNG import market this year.

“Despite efforts to increase domestic production and imports of gas pipelines, China will continue to depend on increasing amounts of LNG imported by sea to meet its demand for natural gas consumption,” Evercore said.

The country is becoming more and more important for the LNG market, especially for the growth of supply in the United States, which, along with the demand from the rest of Asia, is expected to drive the market evolution in the years future.

“For US-focused investors, the biggest benefit of China’s LNG shortage and the current energy ‘crisis’ are the potential benefits for US LNG exporters, as China seeks to quickly secure its long-term LNG supply and diversify its energy economy away from coal, ”Evercore added.

Between January and August, the United States accounted for 11% of China’s total LNG imports, placing the United States among the country’s top 4 suppliers. NGI data shows that 69 U.S. cargoes were routed to China through July, just behind South Korea on the list of top destinations for U.S. cargoes this year.

Evercore noted that China plans to operate more than 30 LNG import terminals with a capacity of 200 million metric tons / year (mmty) by 2025, well above the country’s current capacity of 96 mmty.

While China’s thirst for natural gas could pose challenges to the market this winter, it is already benefiting US exporters.

Reuters reported on Friday that major Chinese energy companies are currently in talks to secure longer-term supplies from US terminals. China’s state-owned oil companies account for the bulk of the country’s LNG import capacity, and at least two of them are in talks for more supply, mainly with Cheniere Energy Inc. and Venture Global Inc., according to the report. Reuters.

Even China’s smaller natural gas suppliers are stepping up their efforts to obtain additional gas. A subsidiary of ENN Natural Gas Co. Ltd recently obtained 900,000 metric tonnes of LNG from Cheniere for a period of 13 years.

Previous Howie Roseman explains why the Eagles traded Zach Ertz
Next Pet Boutique Preps For Halloween + Nuclear Pills Distribution