East China may see heavy inflows of cheap LNG imports

Focus article by Spring Ye

SINGAPORE (ICIS)–Eastern China may see an influx of low-cost liquefied natural gas (LNG) imports in the coming months as domestic cargoes are available at much higher prices, industry sources said on Tuesday.

The region will be dominated by imported volumes if the current trend continues, and prices are likely to fall further, the trader said.

Imported LNG prices in China were assessed at $6.98/MMBtu delivered ex-ship (DES) price on 5 February, down by about 65% from the same period in 2014, according to Heren, an ICIS service.

The latest price is equivalent to about yuan (CNY) 3,100-3,200/tonne, significantly lower than the current traded price of LNG in east China.

On 6 February, LNG prices in east China stood at CNY4,880-5,150/tonne, according to ICIS China.

State-run enterprises, including PetroChina, Sinopec and China National Offshore Oil Corp (CNOOC), and private firms are actively looking for spot LNG cargoes in the international market in view of lower prices, industry sources said.

Importers can still reap some notable margins from imported cargoes even after cost adjustments were made for port handling charges and taxes, industry sources said.

If negotiations go well, a large volume of lower-priced spot shipments are expected to arrive in east China in March-April, the sources said.

The breakeven cost of domestically produced LNG from most plants were around CNY4,400/tonne. LNG generated by processing coal bed methane in Shanxi province, on the other hand, has a lower breakeven cost of CNY3,600-3,800/tonne, market sources said.

During the winter season of 2014, a city gas company in east China had purchased LNG at as high as CNY5,600-5,800/tonne, but were lower compared with the maximum cost of CNY6,500/tonne posted in the same period in the previous year.

LNG prices in China have been falling since the market has been in oversupply since early last year while demand has remained weak, industry sources said.

Domestic LNG producers will not be able to compete with importers if the high costs of feedstock gas persist, an industry analyst said.

In Shaanxi province, which hosts 18.7% of China’s total liquefaction capacity, supply of feedstock gas from PetroChina stood at CNY2.48/cbm, industry sources said.

Feedstock gas costs vary depending on region and supplier.

($1 = CNY6.25)

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