Our results are divided into two main parts. Firstly, we use the model to evaluate the import risk of global historical years, and select 2007,2015, and 2020 for analysis. Second, we simulated the future risks and strategies based on forecasts for global LNG trade in 2030.
Global import risk evaluation
In 2007, China started importing natural gas for the first time. In 2015, China’s dependence on foreign gas exceeded 30%. As of 2020, China’s dependence on foreign countries has reached 43%, making China the world’s second-largest LNG importer. Since the dependence on imports exceeds 30%, it will become an important factor affecting energy security29, so we have chosen these three years to verify and analyze the risks of China and other major importing markets in the LNG global governance system.
Figure 2 shows the comparison of LNG import risks in different import markets in different years. In general, China’s import risks are showing an increasing trend year by year. The most important factor is the increase in demand. We found that in this transition process, the impact of risk is also different. Maritime risk is the risk with the greatest impact. Although the maritime risk for imports in 2007 is limited to the Strait of Malacca, it accounts for the highest proportion of the three source risks. After 2015, the increase in LNG import risks comes from imports from the Middle East and Africa, and the transportation risks in the Straits of Malacca and Hormuz have become the most important factors30. Due to the high similarity of import sources between the Japanese and South Korean market and the Chinese market, the above risk analysis is also suitable for analyzing the shipping risks of LNG imports in Japan and South Korea.
The comparison of LNG import risks in different import markets in different years.
However, different market risks also have differences in price risks. We found that Japan and South Korea’s price risk has a downward trend from 2015 to 2020. The reason behind this is due to the transformation of the Asia–Pacific region’s purchase price system: the transition from the oil–gas pegged era to the gas-to-gas pricing model is similar to the decoupling of oil and gas in North American and European markets31. In fact, after 2018, the world LNG supply and demand pattern gradually changed from a shortage of supply to a trend of oversupply. Relying on the spot pricing method, the export competition to the Asia–Pacific market is gradually increasing, the price is lowered, and the price risk is also reduced. However, under the huge LNG import demand, the long-term import contract transaction method is still adopted, and the price is still the long-term contract price.
LNG promotes the development of the international natural gas market from regional to global integration, and the cost of this process is shared by both supply and demand. This counterfactual result just reflects that the global natural gas market governance system is jointly shaped by both importers and exporters, and exporters share higher costs than importers. It is the flexibility of LNG that has transformed the natural gas market from supply to demand. Figure 3 shows the export/import security costs of various LNG trading countries in different years. For each LNG import market, the degree of scarcity faced by each import market is different. In terms of unit import security costs, North America, South America, and Japan and South Korea are the highest, followed by other markets. Because the demand for LNG in the American market is small and imports are only from neighboring countries, the degree of diversification of imports is low, so the cost of import security is higher than that of other markets. However, Europe, China, Japan and South Korea, and the Rest of Asia and Africa have a large import demand, high import maturity, and a wide range of import sources, and the scarcity faced by these countries is positively correlated with their import demand. In terms of total import security costs, the security costs in the Japanese and South Korean markets were the highest in the three years, which indicates that Japan and South Korea are more in short supply of LNG and the import costs are greater.
The export/import security costs of various LNG trading countries in different years.
As far as LNG exporting countries are concerned, Qatar and Australia have the highest export security costs. Both countries have always been among the top exporters of LNG, and the export costs are also relatively high. In 2019, Australia’s LNG export volume surpassed Qatar and became the largest export country. Australia is rich in natural gas resources, and many projects are still under construction. It is expected that future production will increase significantly, which will also alleviate the current shortage of LNG supply. Qatar, as one of the countries with the entire industrial chain of upper, middle, and lower reaches, has a high degree of flexibility and reliability in LNG export. Qatar is also improving infrastructure and equipment, reducing LNG production costs to increase its supply. Due to the shale gas revolution in the United States, other countries will also become the backbone of natural gas supply in the future.
This section also analyzes the risk sources of the important LNG import market in 2020. Figure 4 shows the three types of risks in the four markets of China, Rest of Asia and Africa, Japan and South Korea, and Europe.
Risk identification of import sources in each LNG import market.
When there are political fluctuations or economic crises in the exporting country, it may cause the interruption of LNG supply and make the import market face a supply shortage of LNG. In 2020, countries with high national risks are mainly Peru, Egypt, Angola, and Papua New Guinea. Importing LNG from these countries will involve high-risk costs. In terms of price risk, due to the impact of regional price premiums and ocean freight, different markets have different import prices for various exporting countries. On the whole, China, Japan and South Korea’s import prices from the Middle East and Africa are much higher than those from other regions, while the Rest of Asian and African market’s import prices from the Americas are higher than other regions. Europe’s import prices from Southeast Asia are higher. As far as maritime risks are concerned, maritime risks are mainly affected by the distance of the sea and pirate attacks within the route. If the LNG importing country and exporting country are in the same region, the maritime risk is lower, otherwise, the risk is higher. Just talk about China, the source countries of high maritime risk come from the Middle East and North Africa. On the one hand, the sea distance is too long, and there are too many uncontrollable factors, which increase the risk; on the other hand, the Gulf of Aden and the Strait of Malacca are the necessary waterways for North Africa and the Middle East-China route, and frequent piracy also increases shipping risks. Imports from Southeast Asia, Australia, and the Americas have relatively low maritime risks.
Considering the three risks, the priority importing regions for China, Japan and South Korea are Southeast Asia and Australia. Importing LNG from these regions has low shipping and economic risks. However, the demand in the two markets is too high, the competition for LNG imports from the above-mentioned regional countries is high, and the LNG supply in this region cannot meet the import needs of the two markets. High supply despite high import risks is also an indispensable source of imports for the two markets. For the Rest of Asian and African market, the overall risk of importing LNG from the Middle East is low, and Southeast Asia is its second source of imports. Europe, the Americas, the Middle East, and North Africa are regions with low import risks. In summary, intra-regional imports are the preferred choice for reducing the risk of LNG imports. However, the increase in LNG demand cannot fully satisfy the LNG supply in the region. Although the risk of LNG imports from outside the region is higher, it is still a necessary source of supply.
China’s import plan
The strong development of the LNG demand market and the increase in supply market capacity will increase the diversification and flexibility of the global trade market in the future, and the situation will become increasingly complex32. The degree of competition in the LNG market may continue to increase33.
By 2030, LNG supply growth is mainly concentrated in the United States, Australia, Qatar, Russia, Malaysia, and other countries34. With the investment in shale gas development, the United States is expected to reach 150 bcm of liquefaction capacity in 2030, becoming the world’s largest exporter of LNG. For traditional exporters, the increase in LNG in the Middle East is mainly concentrated in Qatar35. All of its pending projects will be put into production before 2030, and the estimated production capacity will reach 148.2 bcm, which will still occupy a large market share. As Australia’s LNG production boom has begun to turn, supplies will be limited for some time to come36. Although Russia’s natural gas exports are mainly piped gas, it has been increasing its LNG capacity in recent years, and the commissioning of new LNG projects will bring its annual production capacity to 56 bcm per year by 2030. In Africa, Algeria and Egypt are affected by the source of raw gas and the LNG supply capacity is expected to remain at the current level in the future. By 2030, LNG demand is expected to double, with the main demand concentrated in Europe, China, and South Asia. The BP Energy Outlook expects China’s LNG imports to double to 150 bcm around 2030, surpassing PNG imports. Europe and India will also see further expansion in LNG demand, while Japan and South Korea will maintain their current imports. Emerging LNG importers in Southeast Asia, such as Thailand, Singapore, and Bangladesh, will see a rapid increase in demand to reduce pollution. Supplementary Table a, b provide the estimated supply and demand of LNG trading countries in 203037. Except for the countries mentioned in the table, other importing and exporting countries still retain the existing supply and demand.
In this section, we take the forecast of global LNG supply and demand in 2030 as the basic data to solve the model and get the game equilibrium result of global import and export trade when the LNG import risk is minimized in 2030, which is the corresponding import strategy. Figure 5 shows the LNG import portfolio transaction results in 2030. According to forecasts, in 2030, the United States, Australia, Qatar, Russia, and Malaysia will become the world’s major LNG suppliers. The top five exporters will account for 75.36% of the LNG trade market, with the United States becoming the world’s largest LNG exporter with a market share of about 25%. The growth of U.S. LNG exports mainly meets the LNG demand gap in Europe and China. The U.S. exports LNG to almost all import markets, which also makes its exports more diversified, ensuring its export security. From the prediction and simulation results, about 40% of the LNG import market demand in the Asia Pacific is supplied by four Southeast Asian countries and Australia, and the remaining demand mainly comes from the Middle East and the United States. Notably, the conflict between Russia and Ukraine has led Europe and the United States to tighten sanctions against Russia. The Financial Times reported that the EU plans to cut imports of pipeline gas from Russia by two-thirds and increase imports of LNG from the United States and other countries. Russia also plans to transfer the remaining natural gas to the Chinese market, so that China will reduce its dependence on LNG imports and import risks in the future.
LNG trade strategy in 2030 at risk minimization (Figures represent the total volume of imports or exports in BCM).
It is estimated that by 2030, China’s LNG import demand will reach 150 bcm, an increase of 38.3% over 2020. Figure 6 shows China’s LNG import strategy for 2030 risk minimization. Qatar and Australia, which are major LNG exporters, also increased their supplies to China from 2020. However, from the perspective of reducing import risk and ensuring supply security, China cannot import too much LNG from these two countries to meet the demand gap. Our model finds that in 2030, China will import about 27% of its total LNG imports from the United States to meet its domestic demand. The reasons behind this are as follows: From the risk identification in the previous section, we can see that China’s LNG import risks mainly come from Australia and the Middle East, and the import risks from the United States are smaller. Increased imports from the United States could reduce the risk of imports. In the optimal import strategy we obtained, Australia, the United States, and Qatar still occupy the largest market share in China. Meanwhile, to ensure the diversification of China’s supply sources and reduce import risks, Southeast Asian and African markets are also China’s import target countries. In addition, we use the model to simulate the sensitivity of LNG trade to changes in China’s LNG demand, which could reshape LNG trade strategies through significant changes in its import trends. If China’s LNG import demand increases to 170 bcm in 2030, due to import diversification restrictions, China cannot obtain surplus imports from the United States and Australia, and imports from Qatar have doubled.
Simulation of China’s LNG import strategy in 2030.
