Chinese buyers shun spot LNG as NDRC caps domestic gas prices

Monday, 08 February 2021
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Price-sensitive Chinese buyers have turned away from spot LNG for February delivery after Beijing put a lid on domestic prices. Utility buyers in China are reluctant to pay anything above $15 per MMBtu given that they can also revert to pipeline gas, imported from Russia and Turkmenistan, or domestic supplies.

Buyers were reluctant to offtake cargoes when spot prices surged beyond the $11 per MMBtu level, and Asian traders noted these high prices caused some ‘demand destruction, especially in China were importers cannot fully pass on their costs to the downstream market.

Putting a foot down, China’s powerful National Development Reform Commission (NDRC) stepped in and effectively capped domestic gas prices. Trucked LNG prices are not permitted to exceed 20% of the city gas price guideline, according to state-run Xinhua News, while several LNG import and regas terminals were notified that ex-factory trucked gas prices should not be higher than Yuan 5,500-6,000 per million ton.

Startled by the government’s crack-down on domestic price surges, Chinese buyers have turned their back on expensive LNG cargoes. State-controlled CNOOC, PetroChina, Guangzhou Gas and Guangdong Energy are understood to have left purchase tenders, issued in mid-December for January-February deliveries, unawarded in the face of record high spot prices.

NOCs step up volumes of pipeline gas imports

In December, Chinese gas companies had bought record volumes of LNG supplies but no spot purchase was reported since the Christmas holidays. Bowing to government pressure, China’s three national oil companies (NOCs) are turning to pipeline gas and domestic production, while restricting supplies to non-prioritised industry sectors.

At the peak of January’s cold snap, utilities were forced to ramp up gas-fired power plants to full capacity to make up for a temporary dip in coal-fired power output. Zhejiang Energy reportedly supplied a total 400 million cubic meters of gas from January 1-9, up 33.6% year on year, whereby gas consumption for power generation surged 73.7%. In recent weeks, however, utilities have switched to thermal coal-fired plants instead, avoiding to burn expensive regasified LNG. 

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