Australia sees China’s LNG hunger abate as it imports more Russian gas

Thursday, 07 April 2022
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The Australians, supplying the largest share of China’s LNG imports at around 39 percent, expect the People’s Republic will import 86 million tons of LNG in 2022 – a slightly slower rate of growth, as Russia ramps up deliveries of rival pipeline gas through the ‘Power of Siberia’ interconnector. An economic slowdown also reduces China’s gas demand for power generation and industrial use.

According to the Resources and Energy Quarterly, published by the Australian government’s Chief Economist’s Office, China’s gas demand will increase by around 41 percent in total over the outlook period to 2027, driven by the industrial and residential sectors and ongoing coal-to-gas switching in the electric power sector. LNG demand growth is expected to average 5 percent between 2022 and 2027.

Fuel switching drives demand

China’s LNG imports rebounded 4.6 percent in the December quarter 2021, as consumption recovered from a marked slowdown in the September quarter, when high gas prices had temporarily destroyed demand. But shortages in thermal coal supply and a cold start to the winter made power generators switch fuel, which subsequently boosted gas-burn and demand for regasified LNG.

Throughout 2021, the People’s Republic has sought to diversify its gas sources by signing new LNG supply contracts with the US and Qatar, increasing the throughput of gas interconnectors from Russia and Turkmenistan to maximum levels and seeking to secure flexible supplies on the spot market. Still, China imported 80 mtpa of Australian LNG last year – a 20 percent increase from 2020-levels, government statistics show.

Beijing relaxed its macroeconomic policies in recent months in an attempt to revive the economy. But the IMF reduced its forecast for China’s GDP growth to 4.8 percent in 2022 and 5.2 percent in 2023 as rising gas and coal prices caused by Russia’s invasion of Ukraine also affect China, given its high sensitivity to energy prices.

Australia cashes in on high prices

Australia, on the other hand, stands to benefit from record high oil and gas prices. The government in Cranberry expects resource and energy export earnings will hit a record of $425 billion in 2021–22. But today’s sky-high prices deter buyers and energy exports from Down Under are hence set to ease to around $370 billion in 2022–23 before declining back to non-crisis levels around 2027, depending on geopolitical events.

Elevated prices for spot LNG weighted on consumption in some emerging economies, but overall Asian demand stayed high. Japan – Australia’s best LNG customer after China – imported 73.9 mt of LNG in 2021, though demand is on a downward trend and imports forecast at just 72 mt this year as the Japanese government strives to implement a shift to renewables and hydrogen in the face of record high prices for fossil fuels.

Analysts anticipate prices for spot LNG and oil-linked contracts will remain high in Asia throughout 2022 and 2023, pushng up Australia’s LNG export earnings from $30 billion in 2020-21 to a staggering $70 billion this year and further to $82 billion in 2022-23, as oil-indexed contract prices soar.

Undeterred from high prices, global LNG trade is set to rise by about 4.3 percent this year mainly driven by Europe’s quest to secure alternative supply and wean itself off its dependence from Russian pipeline gas. LNG demand will stay elevated this year, despite declining overall consumption – not least because Europe needs to restock its heavily depleted storage which is currently 38 percent below the five-year average.

According to the Australians, Europe’s energy crisis in winter 2021-22 occurred when lower than expected renewable generation coincided with reduced Russian pipeline gas flows and little domestic production. As a result, European gas prices have soared, with average TTF prices up over 400 percent year-on-year.

Projects rush to take FID

Attracted by high prices, a significant pipeline of projects is eager to take FID in 2020 – notably Qatar’s North Field South project and Plaquemines and Corpus Christi Stage 3 in the United states. Analysts expect up to 55 million tonnes of capacity could be sanctioned this year.

America, the world’s swing supplier, is particularly active in boosting existing liquefaction capacity or adding new one. Contributing nearly two-third of the word’s global supply increase, US LNG export expanded 49 percent last year to 75 mtpa. The rapid increase in exports has been encouraged by the large price differences between the domestic Henry Hub prices and the spot prices in European and Asian markets. Moreover, the US benefits from its location on the Atlantic basin and being able to be a flexible provider into both Asian and European markets,” analysts commented. 

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