GIF Comment: Europe’s pursuit of clean energy may leave it exposed as pragmatic China seeks to up its global position as buyer

Author: Katya Zapletnyuk

2020/10/15

LONDON (ICIS)--While Europe’s decarbinisation policies have been marginalising natural gas others are not letting emerging opportunities pass them by.

China’s newly inaugurated national oil and gas infrastructure operator PipeChina has begun offering spare capacity to third parties across its LNG terminals, natural gas pipeline network and storage facilities.

Just ten days after launching, shippers are being offered infrastructure access for both November and December of this year. Before seeking to book capacity, counterparties need to first register with PipeChina as a shipper before 20 October. A full list of would-be shippers has therefore yet to emerge.

As well as listing available capacity across its network, in many instances associated tariffs have also been published.

The establishment of PipeChina as the country’s single midstream operator of key oil and gas infrastructure was grounded in the idea that improved third party access (TPA) would give a much-needed boost to competition and therefore energy security.

Even before it formally took control of key LNG terminals, gas pipes and storage units at the start of October, the new company was championing transparency and centralised platforms as means to allowing new entrants access to the market.

At that time, few would have expected real signs of such plans to materialise quite so soon. Yet from November, TPA on spare capacity is available.

Of course, more still needs to be done. While visibility of upcoming spare capacity will entice some new entrants to the market as well encourage those second-tier energy companies already active to trade more, further transparency is needed.

The European gas model shows that with almost real-time information on flows, capacities and storage levels etc, an increasing number of producers, merchants and utilities are prepared to actively engage in the market.

PipeChina needs to continue to impress as the months pass and surface more data and further reform tariff regimes.

These Chinese reforms are of course not just to the benefit of Chinese market participants.

China is the world’s largest importer of gas when the gaseous and liquid forms are aggregated. It will likely be the outright number one importer of LNG within a matter of years.

For a global LNG market which is oversupplied these actual structural changes could not come at a better time.

What is more, like the European gas market in the 2010s, the widening gap between oil-indexation and spot pricing should further encourage Chinese gas buyers to book monthly capacities and seek out international sellers who are content of dealing a cargo at a time.

Gas hub development is something that is championed by many countries globally, which often cite the experience of Britain’s NBP and the US Henry Hub.

There are many key factors that make a successful hub and many attempts fail.

China’s path to hub creation is still in its infancy, early signs are promising, and the timing could not be better.

For those in Europe, however, who are betting on LNG to replace Russian pipeline gas as the main source of supply Chinese reforms could spell tougher global competition.

Cushioned by the stability of Russian and Norwegian long-term contracts Europe has been able to attract increasing LNG volumes mainly thanks to its well-developed hubs.

Leaving its supply security totally at the mercy of the ebbs and flows of global price dynamics, however, may prove a risky gamble.

Tom Marzec-Manser & Katya Zapletnyuk