Thanks to China’s resale of liquefied natural gas (LNG), Europe appears to be on track to avoid a winter energy shortage and meet its original storage target by November.
Nikkei Asia reported that China is reselling excess LNG due to weak domestic energy demand, which brings ample supply to the spot market, and even if prices are higher, Europe is still seizing the opportunity to buy spot LNG from the market.
JOVO Group, a major Chinese LNG trader, recently said that it has resold LNG to European buyers, and the profits may reach tens of millions or even hundreds of millions of dollars. Sinopec Group (Sinopec Group) also admitted in an earnings conference call in April, The company continued to import excess LNG into the international market.
According to Chinese media reports, Sinopec alone sold 3.15 million tons of LNG, while China’s total resale of LNG may exceed 4 million tons, equivalent to 7% of Europe’s natural gas imports in the first half of the year.
According to data from research firm Kpler, in the first half of this year, Europe’s LNG import volume increased by 60% compared with the same period last year, with a total purchase scale of 53 million tons, enabling the region to reach 77% of its gas storage level. If the situation persists, Europe has a chance of reaching 80% of its gas storage target by November.
Even if this gives Europe some breathing room to temporarily avoid an energy crisis, the risk is that once economic activity in China rebounds, the situation will reverse sharply. In addition, China’s natural gas production may also affect Europe’s energy procurement plans. The more desperate Europe is for energy supplies, the more capable China’s policies will be to influence the EU.
While Europe is trying to wean itself off its energy dependence on Russia, it is ironically becoming increasingly reliant on China, which runs counter to the geopolitical trend of the United States and its allies defending a liberal international order.
What makes China an LNG seller?
As a major energy consumer in the world, the primary reason why China has begun to resell LNG is the economic downturn.
Data show that China’s gross domestic product (GDP) grew at an annual rate of only 2.5% in the first half of the year. Xuelian Li, an analyst at Marubeni Research Institute, pointed out that the demand for industrial fuels and chemicals due to China’s lockdown has dragged down natural gas demand in the first half of the year, and the demand outlook in the second half will not be very good.
Then there is the Beijing government’s policy directive to support coal development and strengthen power supply. According to Lu media reports, China’s Shanxi province has increased its coal production by 100 million tons this year, reaching 1.3 billion tons, and will increase by 50 million tons next year.
In addition, energy consultancy Sia Energy predicts that China’s LNG production in 2022 is estimated to increase by 7% from last year, and as domestic production expands, China’s LNG imports are expected to decrease by 20% this year.
Reduced Chinese imports will have a knock-on effect on international prices. The current Asian LNG price is $45 per million British thermal units (mBTU), which is $15 cheaper than at least $60 in Europe.