“Take it away.” China figured out how to make money on American LNG

MOSCOW, 11 Oct — PRIME, Andrey Karabyants. China resells expensive American LNG to Europeans – the country can earn more than $ 100 million on each batch. The country is short on fuel as the economy recovers from the pandemic, but prefers to look for other, cheaper sources.

ON YOU GOD THAT WE ARE NOT WELL

Due to high prices, Chinese companies are forced to abandon batches of American LNG supplied under long-term contracts. Parts that were not in demand on the Chinese market were resold to Europe, as well as to the countries of East Asia – Japan and South Korea.

In the first eight months of 2022, China received only 19 shipments of LNG from the US, according to shipping traffic monitoring data. During the same period last year, Chinese consumers received 133 shipments of US LNG.

“A large gap has formed between prices. Imports (LNG – ed.) bring us big losses,” the World Street Journal quotes Chinese market participants.

Beijing does not allow itself to buy expensive energy sources, primarily American LNG, as this can slow down the country’s economic development and lead to the loss of competitiveness of Chinese goods in the world market. Chinese energy companies that have signed long-term contracts for the supply of American LNG are forced to redirect them to other markets – primarily to Europe, where gas prices last summer reached record levels and were significantly higher than in Asia. The difference between natural gas prices in China’s domestic market and spot LNG prices in Europe was as high as $40/MMBTU.

Traders estimated that each batch of US LNG destined for Chinese consumers but resold in Europe was generating $110 million to $130 million in profits.

GOOD REPLACEMENT

Despite a decline in energy consumption this year due to restrictions related to the spread of the coronavirus, Beijing still needs fuel to keep the economy growing. China is the world’s largest energy consumer.

he intends to replace American LNG with Russian gas, oil and coal, as well as with his own energy resources.

China and Russia have developed a mutually beneficial, pragmatic relationship that has contributed to economic development despite the Western-instigated energy crisis.

A strong incentive for the development of economic relations between China and Russia is the use of national currencies – the ruble and the yuan – for settlements in trade between the two countries.

The ability to buy Russian energy resources from Russia cheaper than from other suppliers allows Beijing to curb inflation, support economic growth and ensure the competitiveness of Chinese industrial products. In the second quarter, China narrowly avoided a recession due to continued restrictions imposed during the coronavirus pandemic.

MORE FUEL

The State Energy Administration of China predicts that its own gas production this year will exceed 220 billion cubic meters. m, which is 10 billion cubic meters. m more than in 2021.

From 2011 to 2021, China’s gas production grew by an average of 7% per month, doubling. However, demand growth is even faster – at 11% annually over the same period. The rapid growth in demand is due to the transition to gas by households and a number of industrial enterprises, which allowed the Chinese authorities to improve the quality of life of the population and improve the environment. Due to the outpacing growth in demand for gas, Beijing is forced to increase purchases from abroad.

S&P Global Commodity estimates that pipeline gas supplies to China in the seven months of this year exceeded 30 billion (36.27 billion cubic meters), an increase of about 11% year-on-year compared to the same period in 2021. Pipeline gas accounts for 42% of gas imports.

Turkmenistan is the largest supplier of pipeline gas, followed by Russia. Gazprom reports that exports to China via the Power of Siberia gas pipeline in January-September this year increased by 60% in annual terms. It is expected that this year deliveries through the Power of Siberia will exceed 16 billion cubic meters. m instead of the planned 15 billion cubic meters. m.

After the sabotage on the Nord Stream and Nord Stream 2 gas pipelines, which deprived Europe of the opportunity to receive Russian gas in large volumes, China is taking urgent measures to strengthen the protection of oil and gas infrastructure facilities.

COAL IS NOT ENOUGH DESPITE RECORDS

According to the State Bureau of Statistics of the PRC, from January to August 2022, coal production in the country reached a record high of 2.929 million tons. In the eight months of this year, production increased by 13% or 332 million tons compared to the same period a year earlier.

Coal production has grown faster than TPP capacity, as Beijing seeks to increase stocks before the start of the heating season and cut energy imports as much as possible, especially expensive LNG.

The basis of China’s power industry are thermal power plants that use coal as fuel. Electricity production at coal-fired thermal power plants from January to August this year reached a record high of 3.883 billion kWh.

However, record levels of thermal generation cannot meet the growing demand for electricity in China. Beijing continues to buy coal from abroad. Russia, which has huge coal reserves in Eastern Siberia and the Far East, is the second largest supplier of coal to China, behind Indonesia. However, the quality of Indonesian fuel is significantly inferior to Russian coal.

In addition, production costs are rising, and the price of thermal coal in China has exceeded $100/t.