China's Rising Influence in the Global Natural Gas Market

There's been a trending buzzword circulating in the international energy sphere recently: "energy security." It's a catchphrase that has become synonymous with the strategies of numerous countries as they seek to bolster their fuel reserves. A key proponent of this concept, China, is leading the pack with its significant spending on securing natural gas supplies for the distant future.

However, China's approach is more nuanced than simply pursuing energy security. The frenetic pace at which China is securing supply agreements is contributing to the elevation of its influence in the rapidly expanding fossil fuel market - an area where it already boasts the world's second-largest economy.

Remarkably, for the third consecutive year, Chinese companies have demonstrated a more aggressive acquisition of long-term liquefied natural gas (LNG) agreements than any other nation. Importers are regularly striking some of the largest and longest-lasting contracts in the industry, with the government heartily encouraging even more.

These agreements ensure a steady flow of LNG to China through mid-century, serving as a hedge against energy shortages similar to those experienced in recent years due to constraints in coal and hydropower supply. Concurrently, this proactive initiative amplifies China's control over the global gas supply.

A poignant demonstration of this was evident last year, where Chinese LNG buyers converted into suppliers, becoming pivotal in stabilizing the market. They accomplished this by reselling spot shipments to European importers who were eager to offset their pipeline gas losses from Russia.

China's pursuit of long-term contracts took off in 2021, fueled by improved relations with the United States. Although imports saw a slight dip last year due to a decrease in demand amid Covid restrictions, the impetus was renewed following Russia's invasion of Ukraine, which disrupted pipeline gas supply to Europe.

Indeed, this strategy appears to be China's modus operandi in dealing with energy and commodities. The country consistently strives to broaden its influence over essential materials, from copper to rare earths, critical to its own economy and the global market. With demand expected to double in the next decade, China is projected to become the largest importer of LNG by 2023.

China's aggressive LNG acquisition strategy also affords it a unique position in global seaborne gas trade, despite it not being an exporter. Given the long-term commitment from Chinese buyers, suppliers are inclined to prioritize them, knowing that no other importer is likely to make such long-term purchase commitments.

The bottom line is this: China, through its strategic LNG procurement, is poised to provide stability during global shortages. However, it also has the power to withhold supplies and drive up prices to meet domestic demands. Whichever course it takes, China is bound to shape the future trajectory of the global LNG industry for decades to come.