Analysis: China LNG buyers expand trading after adding more US, Qatari contracts

China Gas Holdings

21/08/2023 04:50

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      Raised US, Qatar term contracts by half since late 2022
    

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      Contracted Qatari, US volumes to total 42 mln mtpy by 2026
    

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      Companies seeking more from US, Qatar, other suppliers
    

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      Chinese majors already trading actively; utilities to join
    

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      Chinese companies to act as seasonal sellers into Europe,
Asia
    

  
    By Chen Aizhu, Emily Chow and Marwa Rashad
       SINGAPORE/LONDON, Aug 21 (Reuters) - China's liquefied
natural (LNG) gas importers are starting up or expanding trading
desks in London and Singapore to better manage their growing and
diversified supply portfolios in an increasingly volatile global
market. 
    The beefed-up trading presence of Chinese importers puts
them in direct competition with such global heavyweights as
Shell  SHEL.L , BP  BP.L , Equinor  EQNR.OL  and TotalEnergies
 TTEF.PA  for a market that the International Energy Agency says
doubled in value to $450 billion last year. 
    About a dozen Chinese companies have been expanding trading
teams or adding new desks, with privately run ENN Natural Gas
 600803.SS  and state-run China National Offshore Oil Corp
(CNOOC) the latest to plan London offices, and utility China Gas
Holdings  0384.HK  setting up a Singapore operation, company
officials and traders said. 
    Chinese gas importers have also boosted long-term LNG
contracts with Qatar and U.S. suppliers by nearly 50% since late
2022 to more than 40 million metric tons per year (mtpy), with
plans to add more volumes from those two countries, as well as
from Oman, Canada and Mozambique, traders and analysts said. 
    "We're going to see a paradigm shift in Chinese companies
from being total net importers to (being) more international and
domestic trading players," said Toby Copson, Shanghai-based head
of global trading for Trident LNG. 
    Already, state-run PetroChina  0857.HK , Sinopec  0386.HK ,
Sinochem Group and CNOOC are actively trading volatility to
capitalise on their long portfolios, Copson said.
    China vies with Japan to be the world's largest LNG
importer, although it's not clear how much surplus or other
volumes Chinese companies might have available to trade. 
        PetroChina International (PCI), trading arm of
PetroChina  0857.HK  and China's largest gas trader with a
100-strong global team in Beijing and four other international
offices, imported or traded about 30 million tons of LNG last
year.
        Zhang Yaoyu, PCI's global head of LNG trading, declined
to comment on the company's traded volume, but said trading was
part of the company's overall strategy. 
    "Supply security is still at the heart of our business
activities. Trading capability is one of the enablers ... to
help us better deal with market swings," Zhang said. 
    By 2026, Chinese companies are expected to have contracted
LNG supplies of more than 100 million tons a year. That could
mean a surplus of up to 8 million tons that year, according to
consultancy Poten & Partners, or a deficit of 5 million to 6
million tons based on estimates from pricing agency ICIS. 
    Either way, China's growing domestic output and more piped
gas from Central Asia and Russia provide enough of a fuel base
that Chinese gas companies can trade or swap U.S. and other
portfolio cargoes when arbitrages open or it makes market sense.
    "I could see China becoming a seasonal seller to places like
Southeast Asia, South Korea and Japan, as well as into Europe,"
said Jason Feer, head of business intelligence at Poten &
Partners. 
    U.S. LNG contracts are done on a free-on-board (FOB), open
basis with no restrictions on destination, and consultant Rystad
Energy estimates U.S. volume will make up a quarter of China's
long-term contracts by 2030.     
        Qatar, which will be China's largest supplier for 2026,
however, offers traditional LNG contracts that are restricted to
a single destination or country.     
    
    BIG PUSH IN A SHIFTING MARKET 
        Russia's invasion of Ukraine last year forced European
buyers to raise LNG imports by two-thirds to replace lost
Russian piped gas. This created an outlet for companies with
available supplies, and Chinese, Japanese and South Korean
companies pounced as global LNG prices surged and the value of
the market doubled. 
        European users have also been reluctant to sign
long-term contracts because of decarbonisation goals, and Asian
gas traders and importers have been sending LNG to Europe during
spring and summer to fill storage tanks there, Feer said. 
        PCI as well signed a deal in May to use Rotterdam's Gate
regasification terminal for 20 years, a first for a Chinese
company in Europe. 
    These openings in the market and a more liberalised domestic
 gas market have also prompted smaller Chinese gas distributors
and importers to expand into the trading space. 
    China Gas Holdings, for instance, which has signed contracts
for 3.7 million tons per year for U.S. LNG, is hiring its first
two traders for a new office in Singapore and is looking to
secure more contracts, a company executive told Reuters. 
        It joins ENN, Beijing Gas, Zhejiang Energy and JOVO
Energy  605090.SS  in establishing a trading presence in the
Southeast Asian energy hub. 
    "Compared to Japanese firms, Chinese are way more aggressive
in expansion, with PCI and Unipec among the best payers offering
comparable packages as the global majors," as they look to fill
out trading desks, said a Singapore-based recruiter.     

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Share of LNG imports to China by average monthly volume    https://tmsnrt.rs/3qdYYGM
China's Piped Gas & LNG import volume from 2015 to 1H 2023
China's Piped Gas & LNG import volume from 2015 to 1H 2023    https://tmsnrt.rs/3OnTBNg
Europe's annual LNG import volume 2015 to 2023 Europe's annual
LNG import volume 2015 to 2023    https://tmsnrt.rs/3On7209
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Chen Aizhu and Emily Chow in Singapore, and Marwa
Rashad in London; Additional reporting by Yuka Obayashi in
Tokyo; Editing by Tom Hogue)
 ((aizhu.chen@thomsonreuters.com; Reuters Messaging:
aizhu.chen.reuters.com@reuters.net))