Project Finance Blog

China's LNG demand

Posted by Shellka Arora

March 12, 2019

Posted in Oil and gas Blog article


China’s Ministry of Transport recently proposed 34 coastal liquefied natural gas (“LNG”) terminals with a combined annual import capacity of 247 million tons by 2035. This is more than triple the 67.5 million ton import capacity that existed at the end of 2018. The proposal is preliminary and the plan could change. China’s coal-to-gas conversion policies and GDP growth are increasing the country’s natural gas consumption. At present, natural gas makes up approximately 6% of the country’s total energy mix (figure below). According to China’s gas to power plan, natural gas market share in the country’s total energy mix will increase to 10% by 2020 and to 15% by 2030.

Figure: China’s total energy mix. Source: China National Bureau of Statistics[1]

Domestic output pipeline imports are unable to keep up with gas demand and LNG is needed to bridge the gap. Platts Analytics forecasts that China, already the world’s second largest LNG importer, will remain the biggest contributor to LNG demand growth, with its consumption exceeding Japan’s by 2022 at 73 million metric tons a year[2].

There are no guarantees, however, that this potential demand will materialize. There are several factors that could cause a dent in China’s LNG demand. If the price of LNG increases considerably, it might lead to another energy source taking its place. Another threat is the United States’ ongoing trade war with China, which led Beijing to impose a 10% tariff on LNG imports from the United States in September of 2018. Before the tariff, China was taking nearly 15% of United States LNG cargoes. After the tariff was imposed, only three or four LNG cargoes from the United States have reached China. Since the beginning of the trade war, Chinese buyers have been unofficially barred from entering into long-term agreements with United States LNG projects. A trade deal between the United States and China, including the recently reported potential $18 billion LNG supply agreement between China’s state-run Sinopec and Cheniere Energy, could change dynamics. Weather could also impact demand. China’s imports last year surged 41% from 2017 after natural gas shortages during the previous winter prompted Chinese companies to stock up on supplies and pre-order cargoes, with Beijing continuing to push millions of households to switch to natural gas from coal for heating. However, the country is now grappling with high natural gas inventories in a warmer than usual winter. Importers have overbought LNG and cannot find demand to absorb the volumes. China National Offshore Oil Corp resold at least one LNG cargo in January and possibly another, an unusual move during what is typically a peak demand period and highlighting this year’s warmer weather.

 

[1]     Note that in 2018 coal accounted for only 59% of China’s overall energy consumption, while clean energy resources, such as natural gas, hydropower, nuclear power and wind power accounted for 22.1%. See http://www.stats.gov.cn/english/PressRelease/201902/t20190228_1651335.html

[2]     Analysis: China's LNG demand growth to slow in 2019 on domestic production, pipeline imports

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