Trucking LNG to remote demand centres has surged in China amid a policy push to switch from coal to natural gas in power generation. Pipeline networks take years to develop, hence LNG trucking increased to 8.8 million tons in the first quarter of 2021, up 45.2% year-on-year.
The staggering growth rate is caused by the low base rate in the first quarter of 2021, when LNG trucking and wider energy demand suffered due to Covid-19 related lockdowns.
Though hard hit by the pandemic, China was the first country to emerge from the global health crisis and staged a rapid economic recovery. In the latter part of 2020, LNG trucking rebounded and reached an overall rise of 11.2 million tons, or 40.3% last year – outpacing the 4.4% growth in China’s total gas demand.
Hebei sees highest prices
In China’s north-eastern Hebei province, a heavy industrialised region close to the capital Beijing, the delivered price of trucked LNG increased to over 2,500 yuan per tonne, or approximately $7 per MMBtu. In contrast, spot LNG bought based on the Japan-Korea-Marker (JKM) was lingering at just $2 per MMBtu.
“The weakness in spot LNG prices made it economically competitive against pipeline gas in China. Therefore, companies – especially second-tier players – increased LNG imports last summer, and a big portion of cheap imported spot cargoes were sold through LNG trucking,“ analysts
at the London-based consultancy Energy Aspects commented.
Thanks to the historic low JKM prices last summer, liquid consumption accounted for 20–22% of total gas consumption during May–October 2020, underpinning China’s LNG imports growth despite pandemic-related disruptions. The share of the liquid market quickly dropped to 10–12% during December 2020–February 2021, when total gas demand reached historic highs, driven by the cold spell.
According to Energy Aspects figures, the difference between highest and lowest monthly liquid consumption in 2020 was some 2.84 million tons: 4.09 million tons in October 2020 and 1.25 Mt in February 2020. Factoring in the Lunar New Year and the pandemic, analysts estimate that the liquid market may swing by some 1 Mt between shoulder and peak month.
Two sources of supply
LNG can be loaded onto trucks directly from regasification terminals, and all but two of China’s 22 operational LNG terminals are equipped with truck-loading facilities. The volume of LNG distributed by trucking from import terminals surged 70% year-on year to reach 4.8 million tons in the first quarter of 2021.
Alternatively, natural gas can be sourced from a pipeline and liquefied in-land. China has some 200 land-based liquefaction plants that produced 1.5 million tons of LNG in March, up 4% year on year. These LNG plants supply nearly half of the country’s liquid consumption.
All 31 provinces in China consume trucked LNG, but the five largest LNG-consuming provinces – Guangdong, Hebei, Shandong, Zhejiang and Jiangsu – account for half of the national total.
LNG used for peak shaving
Trucked LNG is being used for peak shaving in China, given the country’s limited underground storage capacity. During the winter, however, LNG import terminals send out more regasified natural gas through pipeline to meet heating demand, while trucked LNG picks up in the shoulder seasons.
Speed matters, and LNG trucking tends to be faster than sending out regasified LNG via pipelines to end-customers in-land. PipeChina’s Yuedong LNG terminal, once owned by CNOOC and commissioned in May 2017, had its associated pipeline project commissioned in March. Until then, all LNG imported through Yuedong was loaded onto trucks.
According to Energy Aspect findings, “truck-loading facilities allow these terminals to send out gas faster than if they just relied on pipelines, increasing the import throughput capacity of these terminals.” n