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China's LNG imports to decline - Woodmac

19th July 2022

     

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PERTH (miningweekly.com) – China’s liquified natural gas (LNG) imports are set to fall over 14% year-on-year to 69-million tonnes in 2022, advisory firm Wood Mackenzie (Woodmac) reported on Tuesday, noting that this was the largest decline since the Asian giant started LNG imports.

China’s gas demand in the second quarter decreased 5% year-on-year, with the weakening gas demand owing to a confluence of factors including economic slowdown, rising gas import prices, policy support for clean coal and a warmer-than-usual winter. 

“Gas-fired power was a major contributor to the absolute decline in volumes. In addition to the factors mentioned earlier, the sector was pressured by growth in use of renewables,” Woodmac research director Miaoru Huang said.

On the supply side, domestic production increased by 4.9% year-on-year in the first half of the year, while pipeline imports increased by 11%. LNG imports totalled 31-million tonnes, down 21% year-on-year.  

“Chinese buyers have minimised their exposure to costly spot LNG. Spot purchases were muted, and reportedly, some Chinese players resold cargoes into the European market,” Huang said.  

While China remains committed to long-term climate goals, the immediate focus is to guarantee energy supply and stabilise energy costs. The national fourteenth five-year energy plan, unveiled in March, re-emphasised coal as the backstop of energy security, Huang pointed out.

In the first half of 2022, the landed prices of LNG imports averaged $15 per million British thermal units (mmbtu), almost double the average landed prices in the same period in 2021. Prices of pipeline gas imports increased by 40%, though this rise was more modest owing to a longer time lag in indexation to oil prices and a larger share by the lowest-priced Russian pipeline gas. 

Based on Woodmac’s latest commodity prices outlook, China’s gas import prices will remain elevated for the rest of the year.

Spot LNG delivered to east coastal provinces would average $43/mmbtu in the second half of 2022, way above the city-gate benchmarks of around $8/mmbtu. Oil-linked pipeline gas and LNG contracts, as well as Henry Hub-linked LNG contracts, will see prices increase from levels experienced in the first half of 2022. They remain more economical than spot LNG though, with average delivered prices ranging between $13/mmbtu and $20/mmbtu, said Woodmac.

Huang noted that policy also remained committed to stabilising gas prices for "prioritised" sectors relating to people’s livelihoods, such as residential and space heating. Non-prioritised sectors are experiencing unprecedented gas price hikes.

He added that as the central policy allowed market factors to play a more decisive role in resource allocation, cost pass-throughs were becoming more frequent. Reportedly, in upstream suppliers’ summer 2022 and winter 2022/23 gas pricing plan, wholesale prices for regulated gas into non-prioritised sectors were 15% to 20% higher than city-gate benchmarks, and for non-regulated gas the prices were 40% to 80% higher. Some volumes were proposed to link to Asian spot LNG prices. Such price schemes, plus a relaxation on coal use, would limit downstream buyers’ appetites and plans for gas sales. 

“Power generation, feedstock use for fertiliser and chemicals, transport and commercial gas demand are expected to decrease from 2021 levels. We still expect industrial fuel gas demand to grow above 2022 levels, but the increments have been downgraded. Residential and space heating will be much less impacted as gas supply to them is prioritised, and prices are protected,” Huang said.

“China is unlikely to change its coal policy as the backstop of energy security in the near future. National policy is unlikely to encourage gas demand in a significant manner due to concerns over supply chain pressure and affordability.  

“As such, we forecast China’s LNG imports to fall 14% year-on-year to 69-million tonnes this year. This will be the largest decline since China began importing LNG in 2006. In 2015 China’s LNG imports declined for the first time but by 1% only. Japan will move back to becoming the world’s largest LNG importer this year.” 

 

Edited by Creamer Media Reporter

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