The Chinese have stockpiled gas for the winter and are ready to resell it

China has built up substantial natural gas reserves ahead of the winter season and may divert some of its contracted liquefied natural gas to resale abroad. According to analysts, this will contribute to high prices in foreign markets and a possible decrease in domestic consumption against the background of warmer weather, according to industry analysts.

By the end of September, China’s underground gas storage facilities were 80% full. Such data at the industry forum in Beijing was presented by Ristad Energy analyst Xiong Wei.

At the same time, the reserves of liquefied natural gas at import terminals of the country have recently decreased. If Chinese buyers decide to restore them to the maximum level, the additional demand could reach about two million tons of LNG.

One of the factors that can limit consumption, analysts call weather conditions. The El Niño phenomenon could make China's upcoming winter milder than usual, reducing the need for heating.

An additional obstacle to procurement is the high cost of fuel. Spot prices in the Asian market are near their highest values in almost four years. The situation is affected by competition between buyers from Asia and Europe after the cessation of supplies of Qatari LNG through the Strait of Hormuz. Industrial enterprises, for which the cost of energy is significant, try to avoid purchases at spot prices.

According to the Chinese consulting company Oilhem, the decline in demand could continue next year if the crisis in the Middle East keeps the price of oil above $ 100 per barrel. Gas prices for many long-term contracts are tied to oil prices.

Analyst Nicole Lee predicts that gas consumption in China may decrease by 4% in annual terms - to about 190 billion cubic meters.

In this scenario, Chinese companies will be encouraged to resell some of the LNG purchased under long-term agreements in foreign markets. High overseas prices will make such transactions more attractive, and the additional supply will potentially reduce competition between Asian and European buyers.

Chief expert of the Chinese Institute of Petroleum Planning and Engineering Zhou Shuhui said that the country’s gas reserves are sufficient to meet its needs until 2030. According to him, this will allow China to more flexibly manage resources and, if necessary, participate in the supply of other markets.