China eyeing long-term LNG contracts to feed demand
China is looking to secure long-term contracts for liquefied natural gas (LNG) in response to increasing demand. LNG demand jumped 18% to 78.9 million tonnes in 2021, the fastest growth rate on record, surpassing Japan as the largest importer. According to sources, China’s LNG demand is projected to grow to 130 million tonnes in 2030 and 160 million tonnes in 2040.
So far, Chinese energy companies have signed 10 contracts between January 2021 and April 2022 for 13.9 million tonnes to 14.8 million tonnes of LNG from American entities. Most LNG purchased by China’s three state-owned energy groups – China National Petroleum Corp., CNOOC and China Petrochemical, known as Sinopec – amounted to a total of 27 million tonnes in 2021.
Now, energy companies owned by regional governments and private-sector utilities are increasingly dealing directly with overseas suppliers and emerging producers, including Venture Global LNG and Cheniere Energy.
While spot contracts accounted for 39% of China’s LNG imports in 2021, contracts lasting 10 to 20 years are thought to ensure better energy security. National security and decarbonisation feature in China’s latest five-year plan for the energy sector, published by the National Energy Administration in March.
Companies owned by regional governments or in the private sector “are shifting their focus away from the surging spot market and toward long-term contracts and are buying more American LNG to optimise their supply,” said Mika Takehara at Japan Oil, Gas, and Metals National – some now have their own terminals as their presence in the LNG market grows.
“Even if ties between the US and China deteriorate, LNG shipments under long-term contracts are unlikely to stop,” Takehara said. “Chinese buyers may be shifting toward these deals as a way to curb risks posed by sanctions and embargoes.”
The US is not the only source of LNG China has sought out. Between January 2021 and this April, China struck four deals with Qatar for 7.5 million tonnes of LNG, and an additional five contracts with Russia totalling 5.76 million tonnes.
“China and [oil] majors” were revealed to be the only entities with the resources to accept the contracts sought by gas producers, a source close to an international LNG concern said.
