China’s domestic gas market tightens as the winter approaches and CNOOC anticipates a 10% rise in demand to 148.7 billion cubic meters (bcm). In northern China, gas demand peaks during the heating season but CNOOC Gas & Power warned supply will be just 147.5 bcm and delays to LNG regas terminal expansions could limit imports.
PetroChina committed to supply 98.6 bcm, up 10 bcm from last winter, but still not sufficient to meet demand. Sinopec will add around 26.3 bcm and CNOOC another 22.93 bcm.
Market observers expect China might need to import large volumes of LNG this winter to make up for potential supply shortfall, however, the limited built-out in regasification capacity in 2020 will cap imports. At least eight Chinese regas projects – both new terminals and expansions – were slates to start up this year. But plans never fully came to fruition after the pandemic struck. Six of the proposed LNG import terminals have been postponed to 2021, leaving just two terminal expansions that could be completed before year-end.
“At the moment, there is still some capacity utilisation headroom at existing LNG terminals,” our Markets Editor Alexander Wilk pointed out. “In case a of a cold snap, the real question is not (yet) how much new LNG import capacity there is but how many households have been switched from coal to gas for heating and generally underdeveloped distribution infrastructure.”
Though coal-to-gas switch for heating is growing in China’s megacities, it is not yet wide-spread on a national level so the industrial demand remains the main driver of Chinese gas consumption.
With winter’s arrival imminent – especially in Northern China – the country’s domestic LNG price was last seen at 3,658 yuan ($457) per tonne or $11.11/mmBtu.
In the event of a prolonged cold period this winter, China has limited leeway to fill any supply gap by importing spot LNG cargoes.
Six regas projects pushed to 2021
The build-out of regas capacity has been halted at the height of the Covid-19 crisis and many projects have been pushed back to 2021.
Construction of PetroChina's Tangshan LNG phase 3 as well as CNOOC and Shenergy Group’s Shanghai LNG phase 2 projects has been called off during coronavirus lockdown and postponed to early next year. Four greenfield LNG import projects that were meant to be completed this year have also been delayed, notably the Dushan and Damaiyu terminals in Zhejiang province, the Jiangin project in Jiangsu and the Chaozhou facility in Guangdong.
The delayed terminal expansions would have added 6.5 million tons per annum (mtpa) to China’s existing 74.55 mtpa import capacity, while the postponed greenfield projects would have added a further 10.8 mtpa combined, according to Argus analysis.
Assuming no additions are made in the coming months, analysts say China could import up to 19.4 million tons of LNG in the fourth quarter and 18.9 million tons in the first quarter of next year. In the event of a cold snap, the limited regas capacity could hamper Chinese LNG importers to swiftly meet peak demand with additional spot LNG. The risk of temporary supply shortages looms large.
