By Rhod Mackenzie

Beijing is strongly encouraging state-owned energy companies to buy as much gas as possible, despite the fact that the energy crisis has now greatly eased, and to invest in export infrastructure in exporting countries. In this way, explains Bloomberg, the Chinese authorities hope to significantly strengthen the country's energy independence by the middle of the century. China is now ahead of all other countries in the number of long-term contracts for the purchase of liquefied natural gas (LNG), moreover, it is doing this for the third year in a row, and is confidently moving towards becoming its main importer in the world by the end of the year. The main advantage of long-term contracts is obvious - they allow you to buy gas at a relatively stable price compared to the spot market, where prices have been on a swing since the start of the conflict in Ukraine in February last year.

“Energy security has always been a priority for China,” explains Trident LNG's Toby Kopson. “Having a large portfolio of contracts allows them (the Chinese) to cope with future volatility (in the markets). I believe the current trend will continue."

Interest in gas has skyrocketed after a sharp decline in the use of coal, previously the main source of electricity generation, in 2021, factories and plants in a number of regions were supplied with intermittent power for a short time. Last year, in addition to the “coal” losses caused by the reduction in the use of coal, a decrease in electricity generated by hydroelectric power stations was added.

Beijing is not only pushing for more imports, but is also pushing its energy companies to increase gas production at home as well.

"Chinese companies are expanding their portfolio of long-term contracts and are already playing a key role in balancing gas markets through the resale of “surplus” gas abroad"

The passion of the Celestial Empire with long-term contracts began in 2021 after improving relations with the United States. The jump in gas prices after February 24, 2022 and the sharp increase in competition in the market showed the Chinese leadership the importance of reliable supplies of "blue" fuel. Beijing is also seeking to diversify supplies, which it sees as a hedge against potential geopolitical upheavals in the future. The more contracts, especially long-term ones, signed by Chinese companies that are confident in the leadership of the country, the more weight the Celestial Empire will have in the global LNG supply. China is already playing a key role in balancing markets by reselling contracted gas to needy foreign buyers when domestic demand declines, as it did last year.

Of course, the Chinese are not the only ones who prefer long-term contracts. New Delhi is also well aware of their importance and advantages, but China is still significantly ahead of everyone, including India, both in the number of long-term contracts and in the speed of their signing. Thus, in the first 6 months of this year, China accounted for a third (33%) of all LNG supplies under long-term contracts. In June, for example, China National Petroleum Corp. signed a 27-year contract with Qatar Energy for the supply of liquefied natural gas and acquired a stake in the expansion project at the Northern field in the Persian Gulf. Moreover, in order to diversify, another Chinese company - ENN Energy Holdings Ltd. signed a long-term contract with the American firm Cheniere Energy Inc. Gas supplies under both contracts are to begin in 2026.

“Now more than half of Chinese LNG demand in 2030-2050. remains uncontracted,” says Rystad analyst Xi Nan.

Of course, a market is a market, and the PRC government does not force Chinese energy companies to sign long-term contracts. They do this only when they are satisfied with the prices and conditions. Chinese companies are negotiating long-term LNG supplies around the world, from Singapore to Houston. CNOC Ltd. and Sinopec are now negotiating the terms of contracts in the US. Regional energy companies such as Zhejiang Provincial Energy Group Co. and Beijing Gas Group Co. are no less active than the giants. In Doha, negotiations between Qatar Energy and several Chinese companies are currently in full swing. Moreover, all contracts are supposed to be signed for more than 20 years. Sinopec plans to invest in gas production in Saudi Arabia.

All of these transactions will be serviced by a dozen new LNG terminals scheduled to be built in the current decade in Chinese ports along the coast. It is planned that LNG imports will grow to 133 million tons by 2033, i.e. roughly double what it is today, according to Norwegian consulting firm Rystad Energy.

This article orginally appeared in Russian at expert.ru