China and Asia win the bidding war for natural gas supplies, while the northern hemisphere heads into the winter season with pathetically low inventory levels and a rebound in demand after the pandemic.
Just as natural gas prices in Europe and Asia shot to record levels, resource-hungry China secured a large, long-term supply contract for liquefied natural gas (LNG) with the top exporter Qatar this week.
China is trying to secure additional amounts of long-term gas supply while, along with the wider Asian region, it is also offering LNG spot loads, which leaves Europe with fewer spot offers and further exacerbates the European gas crisis.
According to reports, Chinese authorities are urging state energy companies to secure supplies for the winter “at all costs,” which analysts say will continue to fuel demand for natural gas and coal this winter.
And as early as January, China will have more LNG volumes available under a long-term 15-year contract with Qatar Petroleum.
This week, Qatar Petroleum and a subsidiary of the China National Offshore Oil Corporation (CNOOC) achieved a long-term agreement under which Qatar will deliver 3.5 million tons of LNG per year over 15 years from January 2022.
Since Qatar began exporting LNG to China, the Gulf nation’s gas has delivered 715 loads of LNG to China, of which 270 loads (more than 24 million tons of LNG) were delivered to CNOOC.?
This week’s deal is the second major long-term LNG supply agreement between Qatar and a Chinese energy giant.
In March, Qatar Petroleum signed a ten-year LNG supply contract with the Chinese giant Sinopec. The Gulf country will supply China Petroleum & Chemical Corporation, or Sinopec for short, with 2 million tons of LNG annually from January 2022.
Despite the long-term deals with Qatar, China still needs a lot of LNG this winter as its economy recovered from the pandemic and its energy emissions targets resulted in increased gas consumption at the expense of coal.
This year, very low gas supplies in Europe and low supplies in Asia after the unusually cold and long winter of 2020/2021, along with the economic recovery from COVID restrictions, are driving gas demand ahead of the heating season. The gas markets are tense around the world, which is having an impact on the other energy resources coal and crude oil.
Europe’s natural gas and electricity prices have risen again to new record highs on Thursday amid concerns about low supply and predictions of lower-than-normal temperatures in the UK.
The gas crisis in Europe is driving Asian spot LNG prices higher, but Asia has been winning the bidding war so far as buyers prefer to ship LNG to Asia, where gas prices per million UK thermal units are higher than equivalent prices in Europe.
“You now have more purchasing power,” an LNG broker told the Financial Times, based on LNG buyers in Asia. “Europe has pipeline supplies and China and Japan have no alternatives,” added the broker.
“The significant growth in gas demand for COVID-19 in both North Asia and Europe has led to competition for LNG cargoes, particularly from the US and Qatar, and has driven gas spot prices to record levels for this time of year,” said the in Australia-based energy consultancy EnergyQuest said in a Note on Thursday.
The spot prices for LNG in Asia have not only exceeded the records for this time of the year, but also the all-time high from last January. On Thursday, Asian spot LNG prices rose to the highest record ever recorded. at $ 34.47 per million British thermal units (mmBtu) as rated by S&P Global Platts. Thursday’s price broke the January 2021 record of $ 32.50 / mmBtu.
According to Citigroup, LNG prices could up to $ 100 / MMBtu when particularly cold winter weather combines with the tense markets that have pushed up natural gas prices.
“Strong demand and a lack of supply reactions have made the market very tense. Any surprising increase in demand or supply disruptions could drive the price up further, ”said the investment bank in a statement last week.
Even with record prices for LNG locally, according to the guideline of the authorities, China will buy more in order to ensure the supply “at all costs” and avoid more Power outages and an impending slowdown in economic growth as factories close.
The Chinese order to secure supply “indicates that the already very high prices for LNG and steam coal could be further increased by Chinese purchases,” said ING strategists Warren Patterson and Wenyu Yao. called on Friday.
“If we see strong Chinese buying, it will put further pressure on the European natural gas market,” they stated.
By Tsvetana Paraskova for Oil Genealogie
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