China’s LNG market as economic weapon?

13/01/2022



Under long-term deals announced in October, China said it would more than double its LNG imports from the United States after three state-run companies struck agreements with little-known provider Venture Global. Up to 5 million tonnes of the super-chilled fuel are set to flow to China as part of the arrangements.


Australia shipped a record 30.7 million tonnes to China in the 12 months to June 30. Australia's natural gas market in China is worth around $16 billion.


The architect of this market, former WA premier Richard Court, said an apparent snub by Beijing aimed at Australian producers could backfire on China. The US agreements prompted Chinese newspaper ‘Global Times’ to frame the sales as a loss to Australia, which is China's biggest supplier of LNG. Lin Boqiang, the director of the China Centre for Energy Economics Research at Xiamen University, suggested they had come at Australia's expense. "It is obvious that Australia suffered great losses as an energy source for China," Mr Lin was quoted as saying. "It is natural for China to diversify LNG imports, for example, buying more from the US after its relations with Australia froze."


Mr Court, who was WA Premier between 1993 and 2001, said Beijing was on fragile ground when targeting Australia's energy exports. He said China needed to look no further than Europe for the danger in its tactics after energy prices skyrocketed amid efforts to stymie new gas supplies from Russia.


Mark Hanna, a Perth-based LNG industry veteran and head of Energy Market Strategies, suggested the rhetoric from the US deal may have been based more on propaganda than reality. Mr Hanna said the US had only recently entered the LNG market as an exporter, and the deal with China may simply reflect Beijing's desire to diversify its supply as countries such as Japan have long done. He said that, while Australian producers would always prefer to sell more LNG, China had not played a "central" role in developing the local industry, which is second only to iron ore as the country's biggest export earner.


Of the 10 major LNG developments built in Australia since the industry's establishment 35 years ago, Mr Hanna said just two had been underwritten by major Chinese investments.

He also questioned the practicality of the supply deal with the US, noting Venture Global would need to ship its LNG from the east coast of America through the Panama Canal, which was heavily congested and subject to delays. What's more, he said rising US domestic gas prices and higher shipping costs meant the deal would have a hard time competing with Australian supplies on cost.


"There's a lot of risk buying from Venture Global," he said. "By the time it gets to China, it's likely to be $8–$9 [per unit], and, I mean, that's a good fair price. "But Scarborough LNG could also be $8–$9. "So, it feels to me it's more a political statement than anything to do with Australia's ability to supply or anything that suggests Australian is uncompetitive."


The above is an edited extract from a publication that you can find here.