Inner Mongolia-south China LNG arbitrage window to stay closed

25 September 2012 09:01  [Source: ICIS news]

SINGAPORE (ICIS)--The arbitrage window for moving liquefied natural gas (LNG) from Inner Mongolia to south China may remain closed in the short term because of the continued downtrend of prices in the destinations in south China, market sources said on Tuesday

Downstream LNG demand is likely to remain weak, with the upcoming Mid-Autumn festival and China’s National Day holiday from 30 September to 7 October pressing spot prices to fall further, they said.

The arbitrage window has been closed since early September as LNG prices in south China have been falling since early 2012 amid persistently weak end-user demand, ICIS C1 Data shows.

The spot price of LNG for truck delivery in the south China market was assessed at yuan (CNY) 5,000/tonne ($792.40/tonne) on 24 September, a fall of around CNY800/tonne from six months ago, according to C1 Energy, an ICIS service in China.

The LNG price in Inner Mongolia decreased by about CNY550/tonne over the same period.

The LNG price spread between south China and Inner Mongolia markets had narrowed to CNY1,600/tonne on 24 September, while the freight rates between the two markets were at CNY1,625/tonne on average. That effectively closed the arbitrage window.

“Currently, Inner Mongolian LNG is largely being diverted to the Shandong market from the original target market of Guangdong [in south China],” said a key domestic LNG supplier in Inner Mongolia, adding that “local LNG-refuelling stations and industrial users in Shandong are the main receivers.”

Typically, the majority of Inner Mongolia-origin LNG flows to south China and Shandong, with a small amount sold to east China and northeast China, said traders and producers.

Meanwhile, the other major LNG arbitrage windows in China are still open, ICIS C1 Data shows.

The Inner Mongolia-Shandong and Shaanxi-Shandong LNG arbitrage windows are open, with the price spread comparatively wide at CNY200/tonne and CNY175/tonne, respectively.

($1 = CNY6.31)

By: Rebecca Qian

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