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China has become the world's largest LNG import market. Over the past period, Australia has been China's largest supplier of LNG, with more than 40% of LNG imported from Australia. However, due to Australia's continued rebound against China, the relationship between the two countries has deteriorated sharply, even affecting the economic and trade fields. This has also prevented the two sides from starting negotiations on long-term gas supplies, while supply talks between China and other LNG exporters continue to circulate.
Recently, the website of the US Department of Energy released news that China and the United States reached a huge LNG agreement for a period of 20 years with a total of 80 million tons. U.S. global venture LNG signed two agreements with Sinopec to supply 4 million tons of LNG to China each year. At the same time, Venture Global also signed a third agreement with Sinopec's trading company to provide 1 million tons of LNG per year for three years. The 5 million tonnes LNG deal will double China's total LNG imports from the United States.
This U.S.-China gas deal has had a significant impact on Australia. Australia will lose a large part of its LNG export market share to China, and the loss is not small. As a loyal ally of the United States, Australia has been too aggressive in its anti-China stance, which has led to a sharp decline in China-Australia relations. Although the Australian government does not want to admit it, in fact, the deterioration of China-Australia relations has caused great damage to the Australian economy.
Surprisingly, the United States has insisted that the improvement of Sino-US relations presupposes that China must improve relations with Australia and abandon sanctions against Australia. However, the reality is that the market share that Australia has ceded is occupied by the United States. It can be said that Australia is once again led by the United States.
After the deterioration of China-Australia relations, many Australian goods could not enter the Chinese market, and although China's demand for these goods did not decrease, its market share was filled by other countries, of which the United States was one of the major countries. The share of U.S. exports of agricultural products, wine, and beef to China has increased significantly.
In fact, the United States began exporting LNG in 2016. Despite the trade war launched by Trump that has exacerbated tensions between China and the United States, China still imported about $447 million of liquefied natural gas from the United States in 2017, accounting for 15% of total U.S. LNG exports that year, making it the third-largest LNG importer. However, as the trade war escalated, China imposed a 25% tariff on U.S. natural gas and suspended purchases from the U.S. in 2019.
Today, China and the United States have reached a long-term LNG supply agreement worth tens of billions of dollars, which means that China will further expand the scale of LNG imports from the United States, echoing the previous US Trade Representative's statement on the "re-peg" between China and the United States.
The agreement also reflects China's strategy to diversify its natural gas imports to ensure energy security. Countries such as Russia, Australia, Qatar, Turkmenistan and Malaysia have been traditional gas suppliers to China.
Negotiations between China and U.S. LNG suppliers began early this year. Five companies, including Sinopec and CNOOC, are the main negotiators of the Chinese side, while the global venture capital LNG company and the largest liquefied natural gas producer in the United States, Chanil Energy, are the main negotiators of the US side. Recently, due to China's power shortage, heating fuel shortages and a surge in natural gas prices in Asia, negotiations between the two sides accelerated and a deal was finally reached.
The U.S.-China gas deal has also raised concerns in Europe. The German newspaper Wirtschaftsbrecht reported that the United States is sending natural gas to China instead of Europe, which has caused some concern in Europe. As China plays an increasingly important role in low-carbon economic development strategies and global climate governance, the demand for natural gas is increasing.
China's dependence on foreign countries is as high as 40% and continues to increase, with the share of natural gas in the energy mix increasing from 5.8% in 2015 to 8.4% in 2020. Therefore, the import of liquefied natural gas, which can be transported by large tankers and reduced to gas after arriving in China, is supplied to natural gas
Internet. Faced with this demand, the world's major natural gas exporters are seeking to establish cooperative relations with China, hoping to get a piece of China's huge market.
In this context, the conclusion of the Sino-US natural gas transaction is not only a commercial cooperation, but also a microcosm of Sino-US relations. Trade and energy cooperation between the two sides reflects, to some extent, the complex interaction between the two countries. The LNG deal is part of a phase one trade deal between China and the United States, in which China has pledged to buy $200 billion in goods that also includes energy products. However, in the first eight months of 2021, China purchased a total of $113 billion of goods, with only 62% actual completion, with an even lower level of completion of energy products at 42%. The gas deal may also be about fulfilling previous trade commitments.
However, the agreement also highlights China's diversification strategy in gas supplies. In order to ensure the stability of energy supply, China has gradually expanded its import sources from traditional supplier countries such as Russia, Australia, Qatar and other places. This diversification strategy helps to reduce dependence on a particular country, thereby improving energy security.
Overall, the conclusion of the US-China LNG deal has had a profound impact on multiple levels. It not only affects Australia's position in China's LNG market, but also demonstrates China's diversification strategy in terms of energy supply. It also reflects the complex economic, trade, and energy interactions between the United States and China, as well as a range of issues that need to be addressed as the two sides seek common interests. As the global energy landscape changes, such cooperation may become part of a broader cooperation in the future, and it will also provide more opportunities for countries to cooperate.
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