Europe’s gas stocks stocked with LNG resold by China

Europe's gas stocks stocked with LNG resold by China

China, “unexpected white knight” for Europe, is to its energy rescue. The Europeans have built up gas reserves faster than expected thanks to liquefied natural gas ceded by the Chinese.

China to the energy rescue of Europe. It is partly liquefied natural gas ceded by the Chinese that allows Europeans to build up their reserves faster than expected.

the Nikkei Asia qualifies China as an “unexpected white knight” for Europe, and we have to see how this Japanese economic newspaper, when it comes to Chinese power, only rarely mentions it in favorable terms… irony.

It is noted that the largest buyer of liquefied natural gas (LNG) in the world resells a substantial part of its cargoes to Europeans. Various Chinese market players, industrialists or intermediaries, recognize this, such as the oil company Sinopec which alone sold at least 45 of its LNG cargoes, which corresponds to more than 3 million tonnes.

If we relate this to all European imports in the 1st half, by a quick calculation, this could therefore have covered not far from 6%.

“Life buoy”

A trader in Shanghai exhibits at Nikkei how comfortable the margins of these resales turn out to be, potentially up to $100 million per transaction. Moreover, an analyst in London, Laura Page, specializing at Kpler in monitoring this type of transaction, believes that it is indeed “the great lifeline for Europe”.

It also explains it by the significant decrease in Chinese domestic demand, due to successive confinements, in contrast to ever higher world LNG spot prices.

Moreover, Beijing’s will to refer, as much as possible, to alternative sources, including coal, has been implemented. A public expert in Tokyo insists on a central directive in China that no longer privileges, for the moment, considerations of “reducing the environmental footprint”.

Last March, Prime Minister Li Keqiang himself placed the nation’s energy security at a “strategic height” identical to that of food security.

China can all the better allow itself this gesture towards Europe since LNG is not its main source of gas, but rather the means of filling the gap in demand between its domestic production and its imports by gas pipeline. Two academics from Qatar, Abel Meza and Muammer Koç, demonstrated this in an academic article from March 2021 (Resources Policy).

From Russia to China

In any case, without these Chinese cargoes of LNG, Europe would probably not have been able to reach its storage objectives for November in advance, as the European Commissioner for Energy has just welcomed.

It goes without saying that Kadri Simon does not learn from this that this amounts to moving, at least partially, from a dependence on supplies from Russia to another, that of its major geopolitical partner, China, which to the examination of the statistics of its customs, would thus have redirected a lot of Russian gas towards Europe.

What does not come under the speculation of an analysis is that the Chinese have been strengthening their gas infrastructure for a long time. Also according to their public data, an annual envelope of 15 billion dollars is devoted to it, with across the country fourteen LNG terminals under construction. Just yesterday, a state economic media reported instructions to build capacity in an eastern province traditionally focused on mining industries.

Construction of LNG carriers

Another aspect of this global strategy consists of betting on ships to transport this LNG, by going to challenge the supremacy of South Korea, whose world market share still exceeds 75%. The Shanghai shipyards currently have 17 LNG carriers on order, including four for Qatar Energy, one of the world’s leading producers.

The China Shipbuilding Industry Association (CANSI) expects increased demand to drive up the price of LNG carriers further, which, according to its deputy secretary general, will benefit both China’s shipyards and ‘to those of South Korea.

While knowing, as an official Chinese daily points out based on an assessment by the Norwegian consultancy firm Rystad Energy, that the South Koreans have registered so many contracts that they no longer seem able to accept any others before 2027. An additional asset therefore for China in this energy relationship with Europe.

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