FocusChina in oversupply of LNG; inventory piles up on weak demand

15 August 2012 10:17  [Source: ICIS news]

By Ricki Wang

SINGAPORE (ICIS--China’s inventory of imported liquefied natural gas (LNG) has been accumulating at ports since the second quarter of the year because of slowing domestic demand and increasing consumption of piped gas, market sources said on Wednesday.

This is the first time that the world’s second biggest energy consumer is in oversupply of LNG since the country started imports of what is regarded as the cleanest fossil fuel in 2006, and the glut is likely to persist in the near term, they said.

China National Offshore Oil Corp (CNOOC), the country’s top LNG importer, is finding it hard to get its term cargoes loaded in China as domestic terminals are currently full, a company source said.

Demand for imported LNG volumes has been declining since late May, when Guangdong province, a major LNG consuming region, started to receive pipeline gas imported from central Asia through PetroChina’s second West-East Gas Pipeline, the importers said.

Shenzhen Dapeng LNG Marketing, an exclusive distributor of CNOOC’s truck-delivered LNG in Guangdong, south China, used to sell as much as 100 trucks of imported LNG each day during the peak summer season of June-September, the sources said.

Its daily LNG sales has dropped to just 30 to 40 trucks this year, the sources said, adding that sales to Shenzhen Gas alone has decreased by 3,000-4,000 tonnes/month.

Pipeline gas is also expected to squeeze the market share of CNOOC’s imported LNG on truck delivery in Zhejiang province, ICIS C1 Energy’s research indicated.

LNG demand from power generation industry has been falling given this year’s economic slowdown, market sources said.

Demand from gas-fuelled power plants based in south China’s Fujian province, for example, has been lacklustre since the second quarter because of ample supplies of hydro-power due to sufficient rainfalls and mild temperatures this year, a source at Putian LNG terminal in Fujian said.

Meanwhile, some LNG consumers were unable to start up their new projects on schedule as China’s economic growth slowed down in 2012, the source said, with some industries reducing output or temporarily stopping production.

Falling demand for imported LNG could also be attributed to rising costs, especially of the volumes from Qatar on term contract basis, C1’s research showed.

China’s import costs of Qatar cargoes averaged $1,002/tonne (€812/tonne) CFR (cost and freight) China or around yuan (CNY) 6,348/tonne in the second quarter in Guangdong, about 15% higher than the last done deal at CNY5,399/tonne in the local spot market, according to data from China’s General Administation of Customs.

In the same period in 2011, the average import cost of Qatari cargoes stood at $819/tonne CFR China or about CNY5,189/tonne and importers were able to sell volumes at a higher price of CNY5,611/tonne, officials data showed.

China’s LNG imports under term contracts are mostly priced with a direct linkage to the Japan Customs-cleared Crude (JCC, also known as the Japanese Crude Cocktail) index, which has been on an uptrend since March 2011.

Moreover, there is no ceiling price set for Qatari cargoes, which are largely distributed in China on truck delivery, said a source from CNOOC’s Jinwan terminal in Guangdong.

 “CNOOC was unable to lower its LNG offers on truck delivery in view of higher import costs, thus taking a disadvantageous position when competing with domestically produced volumes and pipeline gas,” a source at an LNG terminal in Guangdong said.

For PetroChina, another major Chinese LNG importer, the cost of importing Qatar cargoes increased to $1,047/tonne (excluding value-added tax) in June this year, up 46% from $718/tonne in the same period last year.

The prices applied to its Rudong terminal in Jiangsu province and at its Dalian terminal in Liaoning province.

($1 = €0.81 / $1 = CNY6.36)

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By: Ricki Wang
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