Trade fallout sours China's taste for Australian LNG

The comments come after China has on several months this year overtaken Japan to be Australia's biggest export market for LNG, after China's demand for gas revived and Japan's demand stalled.

Over 2019-20, Australian LNG shipments to China rose 7 per cent to 29.3 million tonnes, well beyond long-term contract volumes of 19.1 million tonnes and only just short of shipments to Japan of 30.2 million tonnes, according to consultancy EnergyQuest.

China is by far the biggest customer for LNG shipped from Queensland, buying almost all the output of Origin Energy's Australia Pacific LNG venture, as well as being a major buyer from Shell's QGC LNG.

Buyers in China also take some LNG from WA projects including a famously cut-priced contract with the North West Shelf venture, the first long-term LNG purchase deal ever agreed by China that was expected to open the door to a lucrative new market for Australian exporters.

China's demand for LNG more broadly post-COVID-19 isn't an issue, with Han Xiaoping, chief researcher at industry and energy website estimating China's LNG demand will remain at double-digit growth rates over the next five years.

"The pandemic doesn’t bring a dramatic change to China’s LNG demand," Han said.

But he also pointed to a "significant increase in uncertainty for Chinese companies signing new LNG deals from Australia due to the difficult relationship between China, US and Australia".

"The signing of a long-term energy contract requires a sound diplomatic relationship and strong political mutual trust between China and Australia," Han said.

"Australia keeps hurting China’s feelings on various issues and Chinese companies are unwilling to sign contracts with Australia LNG producers.

"Besides, Chinese companies dare not to sign a long-term contract with Australia because the Australian government could take action to intervene in business. Huawei is a case in point."

Han said LNG supply from Australia is being replaced by the countries that have strong political ties with China, such as Russia.

Joyce Liu, a gas analyst at Sublime China Information Co, a Chinese commodity market information provider, expects China’s LNG demand to rise by 10 per cent in the next three years, requiring increased imports.

"The COVID-19 outbreak has not brought an obvious change to China’s LNG demand," Liu said, adding that buyers were happy with the drop in prices this year.

She said the signing of long-term LNG purchase contracts with Australia depends on Australia’s China policy.

"Some Chinese companies have been working closely with some Australian LNG suppliers and they would like to maintain the co-operation," she said.

"However, these companies need to put state interests into consideration."

Liu said China’s LNG imports would increase by over 12 per cent from 2020 to 2022, but that Chinese companies would buy less LNG from Australia due to the tense relationship, with Russia and Qatar to benefit through increased purchases.