China LNG Price to Soar in Off-Peak Season

According to SCI monitoring, a new wave of price peak has hit China’s liquefied natural gas (LNG) market again from early July due to the piped natural gas (PNG) supply restriction implemented by CNPC and the turbulence at LNG terminals. The SCI national average price index of LNG has increased from July 2’s RMB3,799/mt ($10.94/mn Btu) to July 16’s 4,308/mt ($12.40/mn Btu), up RMB 509/mt or 13.40% in two weeks, and it is solid from the current market circumstances that the price will continue soaring in a near-term view.

From the end of last winter heating season, China’s piped gas supply has stayed in a tightening trend. The long-lasted maintenance of Central Asia Pipelines and West-East Pipelines, the mounting replenishment of underground storage, and the accidents of the Burma-China Pipelines, together drained out the redundancies of the gas grid. As the most vulnerable users of the PNG, China’s LNG reliquefaction plants have suffered the in-to-plant feedstock shortage again and again from spring to summer. For instance, on July 17, CNPC noticed plants in Northwest China for another wave of restriction. Herein, supply for plants in Inner Mongolia was cut by 30%-40%, and supply for plants in Shaanxi and Shanxi was cut by 40%-60%. On the other hand, city gas companies had no choice but to increase LNG procurement when they failed to win CNPC’s PNG bidding, further driving the LNG demand to implode.

As the other half of China’s LNG supply, the tank truck loading at LNG import terminals also sees retreats. Though the domestic LNG demand is strong enough, the major LNG importers in China have undesignedly decided to halt the spot cargo purchase already, in fear of the matter of fact that the high price in the off-peakseason may cause an unacceptably high price in the upcoming winter. Meanwhile, the typhoon Maria hitting CNOOC Putian Terminal, and Sinopec Tianjin Terminal’s maintenance for engineering optimization, also narrowed the LNG supply in specific regions.

Together with all those impacts, China’s LNG industry is facing another wave of price peak in July, and the unbalanced market fundamentals are likely to give firm and long enough support for the peak to last till the beginning of the winter peak season. The high price level of LNG in China will give rise to troubles in the emerging LNG industry in China, such as NGV market and LNG storage stations. In the meantime, the extraordinary price peak of LNG in the off-peak season is estimated to retroact towards the whole picture of the gas supply in winter by restraining the increasing demand of the industrial coal-to-gas switched users. This high price level is believed to be set by major gas operators deliberately so as to suppress the vigorous development of the LNG industry and shrink the expected supply level in the upcoming winter heating season against the foreseeable supply deficit.