China wary of relying on US gas exports, report suggests

Concerns that a surge in US gas exports to China could undermine prospects for further expansion of Australian gas sales may be overblown, with the Chinese likely to be wary of sourcing gas from America.

A paper by the National Bureau of Asian Research in the US highlights political concerns in Beijing about relying on the US, which will prompt China to look instead to Australia and Canada for additional supplies of gas in volume.

Australia will overtake Qatar as the largest exporter of liquefied natural gas, which is transported by ships to end markets, from 2017, thanks to burgeoning demand, mainly in north Asia.

By that time, Australia will have the capacity to export an estimated 88 million tonnes of LNG annually, which could rise to 130 million tonnes since many projects being developed have ready expansion prospects.

However, a cost blowout in developing gas projects in Australia, coupled with access to cheap gas in the US on the back of the shale oil boom there, has opened the door to new suppliers emerging.

There are strong political concerns in Beijing about relying on the US for gas supplies, with Chinese companies more active in Canada and Australia as a result, especially since it can take large slices of equity in projects.

The slow pace with which Washington has approved LNG-export projects has reinforced the impression in Beijing that these decisions are political rather than commercial, the report noted.

Similarly, resource nationalism may limit China's interest in sourcing too much gas from Canada, as well.

"Combined with Washington's overall rebalancing [of foreign policy] to Asia, the politicisation of LNG could prove more trouble than it is worth," the report said.

At present, about 85 per cent of China's gas imports comes from five countries - Australia, Indonesia, Malaysia, Qatar and Yemen - to help limit supply disruption risk.

"Beijing has traditionally been wary of becoming over-reliant on any particular country for its energy needs, believing that such dependence would allow other powers to exert leverage," the report noted. "Given the relative abundance of cheap gas in the US, as the 'weaker' power in the relationship, China may feel that relying on the US for gas ... would further reduce its already limited leverage. In fact, virtually all the countries from which China receives gas are essentially resource states that would not be able to exert much political and economic leverage over China."

Additionally, China could receive gas by pipeline from central Asia, Myanmar and, possibly, Russia as it seeks a broad spread of suppliers to reduce risk.