A Bloomberg report on October 17 said China has told its state-owned natural gas importers like Sinopec and China National Offshore Oil Corporation (CNOOC) to halt liquefied natural gas (LNG) sales to Europe. This is because China wants to protect its domestic gas supplies ahead of the winter season.
Over the past months, China had been reselling its LNG to European markets. As you may know, the economic downturn the country has experienced from the Covid-19 resurgence resulted in the implementation of strict policies which led to an economic shutdown and a subsequent low demand for gas.
However, with the winter season fast approaching, China wants to save its LNG supplies for domestic use.
According to Yahoo Finance, the invasion of Ukraine had enabled China to purchase cheap Russian fuel, following sanctions on Russia by Western countries.
Liquefied natural gas (LNG) analyst, Kayode Oluwadare, told Nairametrics that Nigeria will benefit from China’s decision to stop LNG sales to Europe. According to him, LNG imports from China to Europe have kept spot prices low due to the increase in LNG supply to the EU, which has kept downward pressure on benchmark gas prices in the EU.
China’s Decision To Halt LNG Sales To Europe Is An Opportunity For Nigeria To Make More Money
However, with the decision China has made to stop sales to the EU, Nigeria will make more money by selling Nigeria Liquefied Natural Gas (NLNG) Limited‘s spare LNG volumes.
Oluwadare added that although up to 80% of its volumes can be committed to long-term contracts, NLNG has up to 20% spare volumes which can be committed to the spot market.
These spare LNG volumes will now be sold based on spot prices, which will be determined by demand, supply, and environmental factors. In winter, spot prices are higher and even long-term LNG contracts can be renegotiated.
Long-term contracts can be 20 to 25 years and the contracts can be renegotiated whenever there is price volatility in the global market. The Covid-19 era was one of the recent examples of price volatility in the global market. During covid-19, LNG buyers and suppliers had to renegotiate contracts.
Right now, there is price volatility due to LNG price spikes, following the sanctions on Russia, which have created a supply disruption in Europe and increased benchmark prices. So, Nigeria will benefit from this gap in the European market.