Chinese Demand in December and January

Tuesday, 04 February 2020
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China’s m/m LNG offtake continued to grow by 0.66mmt in December, increasing robustly by 9.7% to 7.48mmt. During the last month of last year, the country thus continued its strong demand growth trajectory seen since October, significantly exceeding the demand level seen in December 2018. Consequently, Chinese demand in December represented more significant growth on a y/y basis, registering a plus of 0.83mmt (12.5%). This in turn translated into capacity utilisation of 135% in December, an increase of 15pp y/y.

However, this demand growth met its preliminary end in January, which saw a net demand decline of 0.98mmt (-13%) m/m at the time of writing. As LNG predominantly fuels China’s industrial sector, the Chinese New Year holiday season clearly has had a significant impact (please see price discussion below). At the same time, it is difficult to say to what extent the outbreak of China’s new coronavirus following the 2003 SARS outbreak has had an impact on the price slide. Another factor is the increase of pipeline gas deliveries into China, which recovered from a trough (presumably due to maintenance) in September.

Although additional LNG volumes may still find their way into China before month-end (please see the discussion regarding the Rasheeda above), our data indicates a clear m/m decline in Chinese LNG demand. Whilst still high at 98%, Chinese terminal utilisation has thus dropped by 37pp compared to December.

Prices

Chinese gas prices are trending down though Chinese New Year resulted in preliminary stabilisation in late January.

Reflecting this demand decline, Chinese domestic LNG prices have plummeted in December and January, with December’s privately quoted price declining from November’s peak of $13.42/mmBtu to $12.18/mmBtu. The domestic price slide continued in January and was only slowed at $9.14/mmBtu as the Chinese New Year holiday season kicked into gear. Domestically traded LNG stabilised at $9.04/mmBtu on 23 January.

Meanwhile, the average price quoted by the National Bureau of Statistics (NBS) stood at $12.19/mmBtu on 31 December and declined to $10.84/mmBtu on 20 January.

As such, whilst China’s average December LNG price (NBS) of $12.42/mmBtu was 2.89% higher than that of November, in January the average price declined to $11.09/mmBtu, which was almost 11% down m/m.

Higher pipeline gas availability also weighed on prices with cheap supply

Overall, therefore, China’s domestic LNG prices remain on a downwards trend. This has been aided by the increased availability of pipeline gas since September and a gentle downward slope of oil-indexed gas prices out of Central Asia and Myanmar, which, based on our calculation in reference to Chinese government data, pegged December’s Central Asian gas price at around $5.52/mmBtu.

Power of Siberia commissioned

Notably, Phase I of Russia’s Power of Siberia pipeline has been brought into operation on 2 December, though we only expect around 0.007bcm to have been delivered in December 2019 as part of testing procedures. Nevertheless, PetroChina has indicated that this volume will increase to around 5bcm this year, to be ramped up by 5bcm every year until 2022 and reaching 38bcm in 2025 as Phase II and III are commissioned.

North China

Chinese demand has seen robust monthly growth in the north of the country in December, increasing by 0.37mmt m/m to 3.09mmt. In January, however, that demand growth in the north vanished and instead turned into a regional net decline of 0.71mmt (-23%) to 2.38mmt.

China’s North led by Caofeidian LNG

Leading the roster of northern terminals, Caofeidian LNG took in 0.85mmt in December, consisting of five Qatari cargoes totalling 0.57mmt that were delivered, inter alia, by the Al Dafna (0.12mmt) and the Mozah (0.12mmt) on 17th and 29th December, respectively. Meanwhile, Australia, Indonesia, Malaysia and Oman delivered one cargo each between the 5th and 26th December via the Gaslog Houston, the LNG Maleo, the GasLog Chelsea and the Bushu Maru. In total, these cargoes amounted to 0.28mmt. Caofeidian LNG thereby increased its monthly LNG offtake by 0.19mmt in December but then lost that gain in January as only 0.64mmt had arrived at the time of writing. Nevertheless, the terminal saw a high utilisation rate of 117% in January.

Tianjin terminals steady m/m

Meanwhile, terminal capacity at Tianjin – consisting of Tianjin-Nangang and Tianjin LNG – saw broadly stable monthly demand in December at 1.14mmt, but which had decreased slightly by less than 1% to 1.13mmt at the time of writing as Tianjin-Nangang saw a 9% m/m increase in January to somewhat compensate for the reduction by one cargo seen at Tianjin LNG. As such, utilisation at both terminals remained robust and above nameplate.

Australia was the principal supplier of LNG here, exporting a total of 0.38mmt to Tianjin LNG and 0.76mmt to Tianjin-Nangang in December, in particular out of Pilbara. This dynamic remained constant in January, too, whereby Australia shipped 0.23mmt and 0.57mmt to the two terminals, respectively, though the main supplying region had become Queensland.

Among December deliveries to Tianjin, the Fuji LNG delivered 0.07mmt from Ichthys LNG to Tianjin LNG on 4th December whilst the Asia Integrity delivered Chevron cargo of 0.08mmt to CNOOC at Tianjin-Nangang on 16th December. In January, the Wilforce carried a 0.07mmt APLNG cargo to Tianjin on 13th January whilst the Corcovado LNG shipped a QCLNG cargo to Tianjin-Nangang on 2nd January.

Among other suppliers, Russia was in the lead with two cargoes totalling 0.14mmt from Sakhalin-II LNG via the Grand Mereya and the Ob River. Equatorial Guinea and Indonesia as well as Qatar, Brunei and Nigeria also had one cargo each arrive at the two terminals.

Qingdao and Dalian also saw offtakes decline in January.

The remaining two northern terminals – Qingdao LNG and Dalian LNG – imported 0.70 and 0.52mmt in December, respectively, but which declined to 0.39mmt and 0.52mmt in January. Qingdao LNG procured the majority of its LNG from Australia (0.69mmt) with Papua New Guinea and Russia’s Sakhalin plant supplying a total of seven additional cargoes amounting to 0.53mmt. Meanwhile, Dalian had turned to Qatar for the majority of its December and January offtake (0.44mmt) with two further cargoes supplied by Brunei and one each from Nigeria, Qatar and Russia. Notably, Dalian saw relatively low utilisation in January of just below 60% whilst Qingdao worked flat-out.

East China

Demand in East China was dominated by the wider Shanghai area, where Jiangsu LNG, Qidong LNG, Shanghai LNG and the metropolis’ peak shaving terminal imported a total of 1.57mmt in December as Jiangsu LNG in particular took in 0.88mmt compared to 0.36mmt in November. Moreover, the terminal capacity directly situated in Shanghai also increased m/m offtakes by 0.09mmt (19%) with an additional Nigerian cargo aboard the Sevilla Knutsen in December. In January, demand in the area had decreased by 0.24mmt (-15%) as offtakes at Jiangsu were reduced by roughly a third. Owed to the more established regional gas network, terminal utilisation within the wider Shanghai area was particularly high, with all facilities except the peak-shaving installation working at above nameplate capacity.

Zhejiang and Zhoushan scaled back imports

Meanwhile, Zhejiang LNG, which supplies the coastal province of Zhejiang south of Shanghai, imported 0.46mmt in December, down by 0.13mmt (-22%) m/m. Its neighbouring terminal Zhoushan LNG, however, doubled imports in December to 0.14mmt. Notably, Zhoushan is the first large-scale LNG terminal not controlled by one of the ‘Big Three’ state-owned petrochemical giants PetroChina, Sinopec and CNOOC. However, both terminals continued to reduce offtakes in January, with Zhejiang LNG cutting demand by 30% to 0.32mmt and Zhoushan returning to a one cargo per month routine, which saw monthly utilisation return to a more normal 126% in Zhejiang LNG’s case and slightly below 30% for Zhoushan LNG.

South China

South China boast the most established but also fragmented LNG infrastructure. Regional imports were led by Guangdong Dapeng LNG, its neighbouring Shenzhen Diefu LNG, the Shenzhen Peak-shaving terminal as well as Dongguan LNG, which serves local industry around Shenzhen. In total, these terminals imported 0.93mmt in December, thus growing imports by c. one cargo (0.08mmt) m/m. In January, imports in the Shenzhen area returned to November levels of c. 0.82mmt though utilisation remained robust.

Fujian LNG shows steady performance following October maintenance

Further north along the southern coast, at Fujian LNG, imports stabilised at around 0.27mmt per month in December and January after growing dramatically by 0.41mmt (314%) to 0.55mmt in November following extensive maintenance in October. Nevertheless, the terminal’s utilisation remains high at 120%.

Zhuhai and Jieyang LNG imported 0.30mmt and 0.08mmt in December, respectively, thereby overall importing one cargo more compared to November. Yet, whilst the former thereby doubled offtakes, the latter halved them. The 2mtpa Jieyang facility is among the roster of smaller terminals in China and has suffered from frequent periods of inactivity due to lack of demand since its commissioning in 2017. Accordingly, the terminal made no imports whilst Zhuhai LNG grew offtakes by two cargoes to 0.42mmt and saw utilisation of 148% in January

Hainan Island was relatively quiet

The other two small regional LNG terminals on Hainan Island – Hainan LNG and the Hainan Transfer Station – maintained broadly steady offtakes in December and January. An Algerian cargo aboard the GasLog Santiago (0.07mmt) at Hainan LNG and a small 0.01mmt delivery via the Lucia Ambition at the Hainan Transfer Station were supplemented by frequent domestic transhipments totalling 0.07mmt from neighbouring Beihai LNG. This pattern continued in January, with the Maran Gas Chios delivering a Nigerian cargo to Hainan LNG on 18th January, though Hainan’s Transfer Station, which loads LNG onto trucks for transportation inland, did not take another cargo.

Capacity at Beihai LNG fully utilised in January

In contrast, Beihai LNG, China’s southernmost large-scale terminal, imported 0.37mmt in December, down by 0.13mmt from November, as only Australia and Cameroon had cargoes arrive at the terminal that month. However, this changed in January as the terminal took in an additional cargo from Australia as well as Indonesia, Malaysia and Nigeria in January so that m/m growth stood at 0.21mmt (58%) and send out capacity was fully utilised.

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