China’s m/m LNG offtake grew by 0.42mmt in May, increasing robustly by 7.17% to 6.28mmt. Monthly Chinese offtakes had also grown by 1.48mmt (33.8%) in April, meaning that the country maintained the demand growth trajectory it had embarked on in March. Most of January and all of February were affected by wide-ranging public health measures to counter the country’s coronavirus outbreak, which shut down significant parts of the Chinese economy at the time.
Accordingly, demand in May this year exceeded the demand level seen in May 2019, allowing overall Chinese LNG offtakes to show a robust y/y growth of 0.62mmt (12.4%). This in turn translated into capacity utilisation of 89.51% in May, an increase of more than 19pp y/y.
LNG predominantly fuels China’s industrial sector, meaning demand is strongly linked to economic growth. As such, the clampdown on industrial and social activity through COVID-19 related quarantine measures curtailed gas demand. China’s official manufacturing index plummeted to the record low figure of 35.7 in February but rebounded to 52.0 in March. Notably, the 50-point level represents the tipping point between economic contraction and expansion. China’s PMI has since decreased to 50.8 in April and 50.6 in May,
National Bureau of Statistics data shows. In our view, economic downturns in most parts of the world are weighing on demand for Chinese exports, tempering the initial jump-start of the Chinese economy.
Accordingly, the country’s monthly LNG demand growth also weakened from almost 34% in April to 7.2% in May. Consequently, whilst rebounding impressively over the past three months, sustained Chinese LNG demand at current levels is likely to depend on the extent lockdowns among buyers of Chinese goods are going to be eased.
Prices
Chinese gas prices followed record-low spot LNG prices
Despite the jump in demand, Chinese domestic LNG prices continued to fall following a small increase immediately after the restart of industry in March. Privately quoted prices were thus still declining from N ovember’s peak of $13.42/mmBtu to a low of $7.14/mmBtu in May. Although in the wake of factory restarts domestic prices quickly grew to around $9.38/mmBtu at the end of March – broadly on par with prices seen the second half of January – the price climb was halted at $9.41/mmBtu on 30th March. Domestically traded LNG has since declined to around $7.14/mmBtu.
Meanwhile, the average domestic price indicated by the National Bureau of Statistics (CNBS) stood at $8.77/mmBtu on 30 April and decreased to $8.05/mmBtu as of 20 May, the latest available data point. As such, China’s average domestic LNG price of $9.00/mmBtu in April was 4.5% lower than in March, whilst the average price up until 20th May fell further to $8.27/mmBtu, which was down 8.11% m/m.
Nevertheless, we highlight that there is a lag in the statistical data published by the Chinese government whilst privately quoted domestic prices are clearly trending downwards further, signalling an average May price of well below $8/mmBtu. Notably, landed LNG saw an average price of $6.74/mmBtu in May, according to Chinese customs data.
Higher pipeline gas availability has fed into demand growth
Overall, therefore, China’s domestic LNG prices continue to be subject to considerable downwards pressure but more due to the prevailing historically low LNG prices than lacking demand. Notably, Chinese customs data indicates pipeline gas prices have seen a considerable jump in April, moving up by $1.16/mmBtu m/m. This to us underscores the current state of Chinese gas demand more than LNG prices considering the global LNG price context. According to our analysis, pipeline capacity utilisation stood at 156% based on a monthly breakdown of annual nameplate capacity in conjunction of Chinese customs data. This includes new capacity from Gazprom’s Power of Siberia pipeline, which completed scheduled maintenance in April.
North China
Chinese demand saw significant monthly growth in the north of the country, increasing by 0.22mmt from 1.95mmt in March to 2.17mmt in April. In May, however, monthly demand growth in the north vanished as overall offtakes decreased slightly by 0.08mmt (-3.69%) to 2.09mmt.
China’s North led by Tianjin-Nangang LNG
Leading the roster of northern terminals by volume imported, Tianjin-Nangang LNG took in 0.68mmt in May, consisting of four Australian cargoes totalling 0.30mmt that were delivered by the Kita LNG (0.07mmt), the Hoegh Gannet (0.08mmt), the CESI Wenzhou (0.08mmt) and the Asia Excellence (0.07mmt) between 4th and 15th May. Meanwhile, Russia delivered one cargo from its Sakhalin-2 LNG plant via the Ob River (0.07mmt). The United States, Nigeria, Equatorial Guinea and a re-export from Zeebrugge comprised the remaining four cargoes, which arrived between 12th and 30th May via the BW Lilac (0.06mmt), the Maran Gas Spetses (0.07mmt), the Gaslog Houston (0.08mmt) and the Clean Vision (0.07mmt), respectively. However, Tianjin-Nangang LNG still decreased its monthly LNG offtake by 0.11mmt (-13.9%) in May, pegging capacity utilisation at 76%.
Tianjin LNG saw highest m/m regional growth rate in May
Meanwhile, Tianjin LNG continued to lead regional offtake growth by terminal, increasing imports by 0.06mmt (18.8%) from 0.32mmt in April to 0.38mmt in May. Australia was the principal supplier of LNG here with May imports amounting to a total of 0.32mmt, all from Gorgon LNG. A similar dynamic was also observed in March, whereby Australian plants shipped 0.20mmt out of the total of 0.41mmt imported by Tianjin LNG at the time. The remaining May deliveries to Tianjin LNG were performed by the Golar Tundra, which arrived with a 0.07mmt cargo from Sabine Pass LNG in the United States. Additionally, the Ibra LNG shipped 0.07mmt from Oman.
Caofeidian LNG saw monthly offtakes decline
Caofeidian LNG, meanwhile, saw monthly offtakes decline by 0.07mmt from 0.29mmt in April to 0.22mmt in May (-24.1%). The terminal had been among the few that saw capacity utilisation increase at all from February to March. Utilisation in April and May, however, roughly halved compared to the two preceding months. We think deliveries derived mainly via spot trades with the LNG Lagos II (0.08mmt) and the Seri Balhaf (0.07mmt) delivering a Nigerian and Angolan cargo on 7th and 22nd April, respectively. The month of May, meanwhile, only saw one import at Caofeidian via the Asia Vision (0.07mmt) delivering a Wheatstone cargo on the 30th.
Dalian and Qingdao LNG
The remaining two northern terminals – Dalian LNG and Qingdao LNG – imported 0.21 and 0.56mmt in April, respectively, but which declined slightly to 0.19mmt in May in the case of Dalian. Qingdao, meanwhile, continued to grow offtakes, increasing imports to 0.62mmt in May.
Dalian LNG procured its LNG in May from Australia and Qatar via the Cool Voyager (0.07mmt) and the Q-Max Bu Samra (0.12mmt). Supply to Qingdao comprised contracted volumes, with Australia constituting the majority of its May offtakes (0.38mmt) split between five cargoes out of APLNG with three further cargoes supplied by Papua New Guinea aboard the Spirit of Hela (0.08mmt) and the Papua (0.08mmt). Notably, Dalian saw relatively low utilisation in May of below 40% whilst Qingdao continued to work flat-out.
East China
Demand in East China was dominated by the coastal province of Zhejiang south of Shanghai, where Zhejiang LNG imported 0.56mmt in both April and May. This constituted robust growth of 0.18mmt (47%) over March. Accordingly, the terminal operated at above nameplate capacity during both April and May. Zhejiang LNG’s offtakes were hit particularly hard during February, when the terminal imported only 0.14mmt as lockdown measure – which were first seen in the East China region – began to bite.
Zhoushan LNG
Its neighbouring terminal Zhoushan LNG, meanwhile, also saw robust m/m growth of 0.07mmt (29%) in May as private operators were swept up in the general increase in gas demand, we think. Zhoushan LNG is one of the few LNG import terminals not controlled by one of the state-owned petrochemical giants PetroChina, Sinopec and CNOOC.
Wider Shanghai area boosts capacity utilisation
Meanwhile, the wider Shanghai area – comprising Jiangsu LNG, Qidong LNG, Shanghai LNG and the metropolis’ peak-shaving facility – imported a total of 1.08mmt in May. This constituted growth of 0.18mmt (20%) over the 0.90mmt imported during April. The sub-region’s growth was led by Jiangsu LNG, which increased m/m imports by 0.07mmt (20%) to 0.42mmt in May. The terminal had previously decreased by c. 22% to 0.37mmt in March and to 0.35mmt in April. Overall capacity utilisation for the wider Shanghai area was therefore increase by c. 15pp to 94.7% in May from around 77% in March.
South China
Regional imports in South China – where LNG demand is primarily determined by the southern industrial centre of Shenzhen – saw m/m demand increase considerably in May in line with the rest of the country. Overall demand in the region grew by 0.25mmt (12.56%) to 2.24mmt in May from 1.99mmt in April and 0.98mmt in March.
Southern demand growth led by Fujian LNG in May
Although total offtake volumes were led by Beihai LNG with 0.3mmt, m/m growth in May was led by Fujian LNG after the terminal was put back into full service in April following maintenance. The terminal almost doubled monthly imports from 0.20mmt in April to 0.39mmt in May after offtakes in March had amounted to 0.18mmt. Fujian LNG’s capacity utilisation thus stood at 74% in May.
Shenzhen area back to full capacity utilisation
At the same time, the region’s most prominent terminal – Guangdong Dapeng LNG – also saw offtakes increase by 0.08mmt to 0.83mmt in May whilst its neighbouring Shenzhen Diefu LNG, the Shenzhen Peak-shaving terminal as well as Dongguan LNG increased total offtakes by 0.05mmt. In March and April these terminals imported 0.60mmt and 0.86mmt, respectively, thus showing robust growth to 1.05mmt in May. Capacity utilisation for the Shenzhen area thus stood at slightly above nameplate capacity.
Beihai LNG also firing on all cylinders in May
As anticipated, Beihai LNG saw renewed demand growth in April after having remained absent from the market in March. The terminal boosted offtakes to 0.35mmt in April but did not continue on that growth trajectory in May when offtakes flattened off at 0.30mmt. This can be explained by the terminal’s high capacity utilisation in May, which stood at 120%.
Zhuhai LNG
Zhuhai LNG imported 0.20mmt in May – showing broadly steady m/m demand – whilst Jieyang curtailed offtakes by 0.09mmt (-56%) to just 0.07mmt. Jieyang LNG was absent from the market in both February and March and has suffered from frequent periods of inactivity since its commissioning in 2017. At Zhuhai, capacity utilisation stood at 71% in May, up from the 22% seen in March, whilst Jieyang’s utilisation was at 42%, unchanged since March.
Hainan Island back to normal
The remaining two regional LNG terminals on Hainan Island – Hainan LNG and the Hainan Transfer Station – saw demand recover following a severe reduction in February and March. In both April and May, the Transfer Station returned to receiving its regular cargoes via the Lucia Ambition (0.01mmt), whilst its larger counterpart on the island – Hainan LNG – grew May imports to 0.20mmt from 0.18mmt in April and 0.14mmt in March. Hainan LNG capacity utilisation thus stood at 80% in May.
