China's bargaining power reshapes energy partnerships

In an article disseminated by South China Morning Post, China solidified its position as a dominant player in the global natural gas market in 2023, with imports accounting for a substantial 42 per cent of its total supply.

China has secured a prominent position in global energy markets, boasting an abundance of natural gas supply and enough suppliers to dictate its negotiating terms. The country primarily utilizes gas for its power sector and as a means to transition from coal, thereby reducing carbon dioxide emissions. Recent weeks have highlighted China's growing natural gas ambitions with three significant developments.

First, Guangdong Energy Group has commenced commercial operations at its new $1 billion liquefied natural gas (LNG) receiving terminal in Huizhou, Guangdong province. Additionally, the French multinational Total Energies announced a five-year extension of its sales and purchase agreement with the state-owned China National Offshore Oil Corporation, committing to deliver 1.25 million tons of LNG annually until 2034. 

Moreover, Chinese media reported last month that the second phase of the nation’s first independently developed ultra-deep-water gas field, Shenhai Yihao (Deep Sea No. 1), has begun operations in waters southeast of Hainan, the southernmost province of China. China's substantial gas supply is the result of years of strategic planning, investment, and effort. It is now the world's largest importer of LNG, securing supply agreements with leading producers like Australia, Qatar, and Malaysia. 

Concurrently, China has become the second-largest LNG reseller globally, striking deals with countries facing high prices to address their supply shortages. This year, Chinese energy companies have capitalized on low LNG spot prices to enhance supplies that might have otherwise gone to other nations. Furthermore, China imports gas through long-distance pipelines from Turkmenistan, Russia, and Myanmar. 

Exports of Russian gas to China via the Power of Siberia pipeline are anticipated to reach an initial capacity of 38 billion cubic metres (1.3 trillion cubic feet) annually by 2025. In 2023, China’s natural gas imports averaged 16 billion cubic feet per day, comprising 42 per cent of the country's total natural gas supply, a significant increase from 15 per cent in 2010. 

The remainder of its supply comes from both onshore and offshore production, including resources from the hydrocarbon-rich South China Sea. Chinese negotiators are now advocating for much lower purchasing prices and more favourable contract terms, often walking away from negotiations, which frustrates suppliers. Russia experienced this situation firsthand this summer concerning the Power of Siberia 2 pipeline, which is still under construction and expected to transport gas from Siberia to China. 

China not only pushed for prices that Russia found unacceptable, but it also indicated that it would only be able to purchase a small portion of the pipeline's projected annual capacity of 50 billion cubic metres.

Russian analysts have voiced their frustration, lamenting that Moscow is now at the mercy of a single buyer with limited options. It remains uncertain when, or if, the two sides will resume negotiations, but if they do, China is expected to negotiate as aggressively as before.

By Naila Huseynova