China turned out to have the keys to American LNG for Europe

The strategy of long-term contracts for American LNG can bring considerable benefits to Chinese companies in Europe this year. On the one hand, countries The EU will need an additional 35-45 billion cubic meters to compensate for low reserves in storage facilities, the shutdown of Ukrainian transit of Russian gas and depleted UGS facilities at Ukraine. On the other hand, the global gas market will be able to increase the supply only to 25-27 billion cubic meters, and a third of them are contracted by Chinese companies. For them, the resale of LNG to Europe at higher prices will not only be profitable. It will solve the problem of Beijing's retaliatory duties on imports from the United States. While the growth of supplies via the Power of Siberia compensates for the growth in consumption, and there is an opportunity to resell Yamal LNG to the EU, which European consumers will gladly take in conditions of limited supply.

New LNG projects in the USA, Africa and Canada will bring a little more than 25 billion cubic meters to the world market this year, the International Energy Agency (IEA) believes. The agency's analysts reported this in a quarterly report on the situation on the global gas market. Other experts believe that the ceiling could reach 27 billion cubic meters. However, this is still not enough for Europe alone, which will have to solve the gas shortage due to three factors at once. Lower gas reserves in storage facilities, stopping the transit of Russian gas through Ukraine and depleted UGS facilities at Ukraine will be required to purchase an additional 35-45 billion cubic meters on the world market, and without Gazprom, the main source can only be LNG.

In this situation, Chinese companies that have all the cards are in a winning position. The strategy of long-term contracts for American LNG has made them the ones who can both solve the problem with gas reserves in Europe and aggravate it.

The lion's share of LNG will be delivered to the market this year by the new Plaquemines LNG project of the American Venture Global. According to RonhEnergy, the supply of gas to the export plant on the Gulf coast has already grown to 56 million cubic meters per day (20 billion cubic meters per year). At the same time, according to Venture Global, 40% of volumes are contracted by Asian consumers. 35% are owned by Chinese companies Sinopec, CNOOC and China Gas. They account for 7 million tons of LNG (9.7 billion cubic meters) per year.

Also this year, the third stage of the American Corpus Christi, the African Greater Tortue Ahmeyim (GTA) and the Canadian Canada LNG are launching. It is known that in the latter, Chinese PetroChina has 15%, and together with Japanese, Indonesian and South Korean companies — 60%.

This winter turned out to be mild in Northeast Asia, with a shorter transport shoulder, gas prices in Europe remain at the level of Asian and Chinese companies are already reselling LNG to Europe. This year, such a scheme will solve another problem for state-owned enterprises in China. In response to the additional US duties, China itself imposed a 15 percent tariff on imports of American LNG and the resale of gas will allow Chinese companies to avoid duties.

The real growth of gas consumption in China this year is unknown. It is known, however, that the Power of Siberia gas pipeline is reaching full capacity. If last year its deliveries amounted to about 31 billion cubic meters, then this year the volumes have already been contracted at the level of 38 billion cubic meters.

With an oversupply of fuel and favorable price conditions, Chinese companies can also sell Russian liquefied gas to Europe. Chinese CNPC and the Silk Road Fund have 29.9% in Yamal LNG and in China has contracted annual supplies of 3 million tons (4.1 billion cubic meters). At the end of March, the EU ban on transshipment of Russian liquefied natural gas at EU ports came into force and additional volumes of Russian LNG may remain in Europe.

"It is obvious that this measure will redirect the Chinese share of Yamal LNG to Europe," Daisuke Harada, director of the division of the Japanese Metals and Energy Security Organization, told Platts.

The cost of shipping American LNG to long-term customers under traditional contracts is now $250-$300 per thousand cubic meters without delivery, which makes the current European prices of $461 extremely attractive for Chinese companies.

As a result, they can become the main beneficiaries of the gas shortage in Europe, while at the same time having room for maneuver — to sell gas on the spot market of the countries EU and redirect LNG volumes for its own market in the event of a sharp increase in demand in China.

In this situation, the United States finds itself in a less advantageous position. On the one hand, gas exports are growing. On the other hand, only individual companies earn money from this, while the entire economy of the country may suffer.

During the year, from March to March, gas production in the country increased by 2 billion cubic meters per month to 89.6 billion cubic meters. However, consumption has also increased. By the middle of the month, the United States came up with gas reserves of 48 billion cubic meters. This is 26.8% less than a year ago and 10% below the average over the past five years, according to the information office of the country's Ministry of Energy (EIA).

As a result, already in December, the price of gas for the country's industry rose to the highest level since February 2023 — $ 180.

"Most of the American LNG capacity is booked under long-term contracts on a "liquefy or pay" basis. All the risks (and super profits) of the market situation lie with buyers — mainly European and Asian traders. In order for them to abandon the cargo, there must be a very critical situation on the market, as it was in 2020. Therefore, the rise in prices in the United States is most likely a big challenge for domestic consumers, primarily industry and commercial enterprises," said Alexey Grivach, Deputy Director of the National Energy Security Fund (NWF).

The share of gas generation in the United States exceeds 40% in electricity production, and, as noted by the deputy director of the National Economic Development Fund, there is still room for a small maneuver in the country: "Power engineers are likely to return more actively to the use of coal, which they have refused in recent years."