NOCs to Enforce Stronger LNG Price Control

SCI99

2019-11-19

NOCs to Enforce Stronger LNG Price Control

Sinopec Tianjin Terminal and CNOOC Tianjin Terminal both announced to give extra freight subsidy to truck loading sales this week, resulting in another dealing price drop since two weeks ago when NDRC urged NOCs to control the domestic LNG price level. The posted prices at sites remained strong vividly, but with this extra subsidy expanding to CNY 300-500/mt or $0.82-1.37/mm Btu from the current CNY 200/mt or $0.55/mm Btu due to different destinations, the dealing price level was successfully controlled at a reasonable position, supporting the Northern China to enter winter peak season smoothly.

China’s terminals usually give posted price at the market mainstream level and patch with subsidy to freight to reduce the dealing price according to actual running situations and cost changes. In North China, the subsidy level usually remains around CNY 200/mt or $0.55/mm Btu level, and that is around CNY 400-600/mt or $1.10-1.65/mm Btu level in South China.

At the same time, CNPC announced a new and irregular rule for its feedgas auction at CQPGX, adding a ceiling price to the auction at CNY 2.38/cbm or $9.15/mm Btu for November 14’s 120 mn cbm deal. The above-mentioned auction finished successfully on time. First deal of 80 mn cbm was sold at CNY 2.2-2.25/cbm, and second deal of 40 mn cbm all reached ceiling price at CNY 2.38/cbm. This is also believed a consequence of NDRC’s price control request, and plant LNG production cost is estimated to drop below CNY 4,000/mt or $11/mm Btu accordingly. Compared to October 30’s auction with a final offer at CNY 2.6-2.75/cbm, CNPC’s determination to control the market price under NDRC’s pressure is quite clear.

However, from Shandong Provincial DRC’s latest update, the natural gas supply cut-down for peak shaving of 2019-2020 winter on industrial users is set from November 15 to next year’s March 15 as usual, but the control intensity weakened significantly from previous years, whilst the flexibility and tolerance of the regulation saw great improvements. It is believed the provincial regulations in other regions of Northern China would be similar, and together with the pledge to keep city gas pricing stable, NDRC aims to give bounteous room for industrial users to release their winter demand.

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