China’s LNG truck transportation faces oversupply, low crude

Focus article by Sun Xuelian

SINGAPORE (ICIS)–China’s logistics companies moving LNG by trucks will have to adjust their business strategies in 2015 after suffering at the hands of over capacity and falling crude prices last year, market sources said.

The logistics market in China continued to lengthen amid rising transport capacity in 2014, which pressured down freight rates and even led to negative margins for some companies.

Many small, medium-sized or even large logistics firms found it difficult to find cash flows to operate normal business as a result of poor economic benefit in running LNG truck delivery.

On the other hand truck capacity rose sharply as there were not much requirements in entering the transportation sector in China, resulting in a large number of investors rushing in.

The number of LNG tanker truck rose by around 15% in 2014 year on year to 5,175 units, according to data compiled by ICIS China. One truck is able to deliver about 30,000 cubic metres of LNG per trip.

However, China’s gas liquefaction capacity grew by 66.9% from a year before to 63.74m cubic metres/day by the end of 2014.

Meanwhile, demand for truck delivery fell in line with decreased LNG demand in some regions as a result of losing price advantages over petroleum products amid falling international crude values in the second half of 2014.

Many LNG buyers from the industrial sector in eastern Guangdong and the Pearl River Delta have switched back to liquefied petroleum gas (LPG), according to ICIS China.

The average delivery distance of LNG has also gradually narrowed down and the demand for long-distance transportation declined as a result of rising LNG imports in traditional consumer markets.

For example, Hubei Xinjie Natural Gas brought on stream a 5m cubic metre/day LNG plant at Huanggang in Hubei province, central China, in June 2014.

LNG output from the plant is mainly delivered to south China, thus squeezing the market share of LNG flows from northwest and north China to end-user markets such as Guangdong province in south China.

The distance of LNG truck transportation was shortened to 500-1,500 kilometres (km), which resulted in decreased demand for LNG delivery of 1,500-2,000 km or above.

Shortened delivery distance also led to lower turnover rates of LNG trucks, thus leaving more trucks in idle state.

Moreover, supported by increases in volumes and lower prices, imported LNG is penetrating into markets where consumers used to buying domestically produced volumes.

This also forced LNG producers to sell their output in markets close to the plant site, thus resulting in decreased demand for LNG truck delivery.

However, even though LNG truck delivery market may remain oversupplied in 2015, there are some positive prospects, industry sources said.

The central government has improved and set more stringent requirements on the logistics industry.

The Ministry of Transport has issued stricter policies to regulate the transport market of dangerous goods, which is expected to restructure the logistics market by forcing out those are weak.

Entry thresholds for the dangerous goods transport market has been raised and criteria for measuring companies, vehicles, vessels and staff engaged in dangerous goods transport has been made more stringent, according to the Measures on Strengthening Oversight and Management of Safety Transport of Dangerous Goods published by the ministry on 13 October 2014.

Meanwhile, the Chinese government has decided to reduce the wholesale prices for natural gas under the incremental supply category as from 1 April 2015.

Lower gas prices are expected to boost LNG demand and the development of downstream consumer markets, and in turn spur demand for LNG truck delivery.

However, there are uncertainties with the economic efficiency between natural gas and substitute energies amid low international crude values.

In order to survive, LNG logistics firms have been adjusting their business strategies, industry sources said.

Companies with broken capital chain are leasing out or selling their LNG tanker trucks for the sake of fund returning as soon as possible, sources from several logistics firms said.

Some logistics companies are actively seeking long-term cooperation with LNG supply sources such as LNG plants and terminals so as to maintain sustainable business flows and market shares.

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