Increase in domestic LNG ex-plant prices

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This post was last edited by Yu Qin on 2019-10-16 at 23:12. With the arrival of the heating season, demand is on the rise. Natural gas can be classified by use into residential fuel, vehicle fuel, industrial fuel, and chemical raw materials； Classified by storage and transportation status, it can be divided into pipeline natural gas (PNG), compressed natural gas (CNG), and liquefied natural gas (LNG). In China’s primary energy consumption structure in 2018, natural gas accounted for 7.8% of the total. Within the consumption of natural gas, city gas and industrial use accounted for over 70%, which is a relatively high proportion. 　　On the demand side, driven by factors such as environmental inspections, the shift from coal to gas, urbanization, and adjustments in the structure of industrial and power generation fuels, China’s natural gas consumption has grown at a rapid pace in recent years. Since mid-2017, this growth rate has remained above 10%; by August 2019, the apparent consumption of natural gas had reached 199.6 billion cubic meters, with annual consumption for 2019 expected to reach 310 billion cubic meters. During the National Day holiday, some terminal resources were exhausted, leading to large-scale purchases of LNG as a form of replenishment. Following the rapid recovery, and coupled with the recent drop in temperatures, demand downstream has improved, leading to a widespread increase in liquefied gas prices. In addition, starting from October 15, some provinces and cities in Xinjiang, Inner Mongolia, and the Northeastern region entered the heating season, leading to a gradual recovery in demand from downstream areas. 　　On the supply side, China’s natural gas production has been on the rise; it began to increase again in 2017, with a growth rate of around 10% in recent times. As of August 2019, natural gas production had exceeded 114 billion cubic meters, and it is expected that the annual production for 2019 will reach 170 billion cubic meters. 　　China’s natural gas imports mainly consist of LNG and PNG. Due to the gas shortage in 2017, imports of natural gas increased significantly in 2018, with annual imports reaching 125.7 billion cubic meters, a growth rate of 32% ； The growth rate of imports declined gradually in 2019; by August of that year, the volume of natural gas imports was 87.7 billion cubic meters. The annual natural gas production for 2019 is expected to reach 140 billion cubic meters. 　　In terms of import sources, this year the ratio of PNG to coastal LNG imports remained around 4:6. China sources its LNG from a wide range of countries; in the first eight months of 2019, Australia accounted for the largest share at 49%, followed by Qatar at 13% and Malaysia at 11%. In recent years, the import of LNG from various countries has shown a trend toward diversification. 　　As can be seen from the above information, although domestic natural gas supply has been increasing in recent years, imports have grown at an even faster pace. Given the high reliance on imports for LNG, and the diversity of import sources, it is difficult for any single supplier to dominate the market. 　　Therefore, from a supply and demand perspective, the increase in LNG prices this time is largely driven by demand.