China’s weak natural gas demand cuts into LNG imports
In the eight months to August, China’s LNG imports fell by 3.7% year on year to 12.8m tonnes as a slowing economy reduced domestic demand for natural gas.
Weak economic growth – which has reverberated around global markets – has caused China’s key industrial sector to reduce gas offtake. Many plants have either shut down or have reduced operating rates to cope with the thinning margins, a source at a state-owned major said.
“Everyone knows that China is oversupplied this year because of weak demand. State-owned importers have had to defer or divert a few term LNG deliveries,” a second market source said.
Last year, China imported 19.9m tonnes of LNG – equivalent to around 27.9 billion cubic metres (bcm). This year’s imports are unlikely to top this, barring a drastic change in weather.
Mild winter temperatures for two years running have meant little requirement for additional LNG imports beyond contract offtake, a source at a second state-owned major said. The same could happen again this winter.
A declining crude oil price this year has also made substitute products more affordable than natural gas.
ICIS China assessments for September showed that liquefied petroleum gas (LPG) in south China costs around yuan (CNY) 79.00/MMBtu ($12.43/MMBtu) on an ex-terminal truck basis, compared with CNY90.00/MMBtu for truck-delivered LNG.
“Those who cannot import LNG into China and can switch fuel usage would take LPG to improve their economics,” a private gas distributor in Guangdong said.
Domestic natural gas production was also more than sufficient to meet the requirements. The country produced 83.5bcm of natural gas from January to August this year, a 3.0% rise from the same period last year, data from the National Bureau of Statistics showed.
While the latest year-to-date consumption figure was unavailable, data from the National Development and Reform Commission (NDRC) showed that China consumed around 90bcm of natural gas in the first half of 2015. Although this would put it on track to reach last year’s total consumption of 179bcm, China had expected higher demand growth as it continues its push for greater clean energy usage.
State-owned major PetroChina expects a 2.6% growth in gas demand to 184bcm for 2015, and a rise to 300bcm by 2020, according to an industry report released by investment bank JP Morgan on 1 October.
“Many industry contacts see a mid-to-high single digit gas demand growth in the long term, especially if the government is serious about environmental measures and penetration of gas into China’s energy mix,” the JP Morgan report said. firstname.lastname@example.org