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Tuesday, March 28, 2023

China found a way to ‘trick’ analysts into buying LNG without raising global gas prices

The global extractive industry is impacted by two opposing trends: a decline in production and an increase in demand. However, the production continues to grow a little, very slowly, and the demand increases sharply, which makes it possible to say that the index of the ratio of the two indicators is only decreasing. In this context, the lifting of restrictions by China seems to be the worst news for the industry and the market. However, Beijing has a strategy and a plan to prevent global gas prices from rising. The method was described by Bloomberg columnist Steven Stapzinski.

According to the expert, the energy companies of the Celestial Empire have resumed trading on the world fuel exchanges. For example, a small Chinese importer of liquefied natural gas bought a lot on the spot market for the first time in a year and a half, suggesting a potential return of sensitive prices. However, the company did it so carefully and in small quantities, without entering into long-term contracts, that the market, fortunately, did not react strongly to this undoubtedly landmark event.

Beijing Gas bought a modest amount of gas and oil for delivery to China in April, according to traders familiar with the matter. This is the first purchase by a so-called Tier 2 Chinese importer, that is to say a company not linked to the state giants which manage the bulk of the country’s trade, since the summer of 2021, when the price of fuel began to gradually increase. Other small importers are already beginning to follow suit.

Last year, Chinese LNG imports fell by around 20% after Russian sanctions upended the market and pushed prices to record highs. But in recent months, prices have fallen sharply, and small importers are trying to recover, albeit cautiously.

By design, the actions of small importers without concluding long-term contracts and without prompt deliveries do not harm the world market, do not cause it to hype and panic. However, as a system, it has its own internal contradictions, pushing it towards instability and the growth of quotations, but Chinese companies, perhaps by order from above (in the PRC, few significant activities are carried out without the sanction of the CPC), did everything to prevent further appreciation and destabilization, thus “deceiving” the expectations of Western analysts.

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