Thursday, 30 March 2023 16:52

LNG China – April 2023

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China’s great reopening after nearly three years of lockdowns to fight the pandemic is being warily watched. In fact, Europe’s gas supplies could be harder hit by a stark rise in China’s LNG imports this year than by a loss of all remaining pipeline gas flows from Russia, the International Energy Agency (IEA) warns.

Though “practically all parameters” for Power-of-Siberia 2 – a new 50 bcm/year gas interconnector to China – are agreed, the Russian President Putin claims, no deal has been signed as China seems to bargain for a better price. Gazprom wants to supply up to 98 bcm of gas by 2030, but analyst doubt China will need all that much. 

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China Petroleum and Chemical Corp. (Sinopec), one of the world’s top 10 oil and gas companies and a significant LNG importer to back up its refining and petrochemical activities, reported a 21 percent increase in annual
revenues but net profits dropped by almost the same amount on weak domestic demand. 

Sinopec, an importer of LNG cargoes from Queensland in Australia and from nations such as the US and Qatar, said annual revenues soared to 3.31 trillion Chinese yuan ($483 billion) an increase of 21 percent from the 2.74 trillion yuan ($399bn) logged in 2021.

However, net profits excluding extraordinary items fell by 20.8 percent to 57.18 billion yuan ($8.32bn) from 72.22 billion yuan ($11.24bn) in the previous year as China's energy sector was affected by a fall in domestic sales and higher import prices.

Net cash flow from operating activities tumbled by 48.3 percent to 116.2 billion yuan ($16.9Bln) from 225.1 billion yuan ($32.7bn) in 2021. Sinopec explained that while Chinese gross domestic product grew by 3 percent year-on-year international oil prices retreated from a major rally and saw wide fluctuations, though ended the year with big increases.

But the Chinese major described demand for petrochemical products and natural gas as “weak” in the domestic market. Sinopec said that the jump in revenues was mainly attributed to the increase of both realised prices and the sales volume of crude oil and natural gas.

Sales volumes

“In 2022, the segment sold 34.28 million tonnes of crude oil, representing an increase of 0.6 percent over 2021. Natural gas sales volume came to 31.9 billion cubic metres (Bcm), representing an increase of 3.3 percent over 2021,” Sinopec said, explaining: “Regasified LNG sales volumes were 21.5 Bcm, representing an increase of 12.5 percent over 2021.”

“LNG sales volumes came to 1.42 million tonnes, representing a decrease of 77.0 percent over 2021, as a result of flexible adjustment of sales strategy based on purchase prices and market conditions,” it added, specifying the procurement cost of LNG had increased by 12.3 billion yuan ($1.8Bln) year-on-year.

Sinopec's average gas price was 1,816 yuan ($264) per thousand cubic metres, up 13.1 percent.

Regasified LNG prices were up 66.8 percent to 3,535 yuan ($514) per thousand cubic metres.

Output increases

Natural gas production increased by 4.1 percent to 1,248 billion cubic feet from 1,199 Bcf in the previous year. Based on national statistics, China’s domestic consumption of natural gas reached 366.3 billion cubic metres in 2022 which was down by 1.7 percent year-on-year.

After the weak performance in 2022, Sinopec was more optimistic for 2023 with a fast-improving demand landscape. “China’s economy was now expected to recover and demand for natural gas, refined oil products and petrochemical products is expected to grow rapidly,” stated Sinopec in its outlook, forecasting: “International oil prices are expected to fluctuate at mid-to-high levels."

Sinopec said its capital expenditure plan for 2023 is to spend 165.8 billion yuan ($24.1Bln), including 74.4 billion yuan in the exploration and production segment, mainly on crude production capacity building in Jiyang and Tahe, natural gas production capacity building in west Sichuan and oil and gas storage and transportation facilities. 

Though last year’s spike in global gas prices depressed China’s overall demand, it also led to recent shortages of the fuel in parts of northern China. Tight regulations of the residential prices do not allow distributor to hand through the higher cost for imported gas to end-customers, so they simply stopped reselling wholesale gas to households in December and January. 

LNG shipments to Japan have fallen by nearly 10 percent as thermal coal was the preferred fuel over gas for power generation. But despite the decline, Japanese LNG imports over the course of 2022 were still large enough to maintain the lead over China, whose imports are recovering slowly after the lifting of strict anti-Covid restrictions. 

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The British oil and gas major BP has signed an agreement with PetroChina to develop carbon capture and storage (CCUS) projects in China’s southern Hainan province. Developments will draw on BP’s expertise with the Net Zero Teesside project, a proposed 860 MW combined-cycle power plant in the UK, with all emissions planned to be captured and securely stored.

In China, BP wants to apply its CCUS expertise in the context of PetroChina’s exploration and production activities in Hainan, where the company produces 6000 barrels per day of oil from the Fushan oilfield. Plans have been worked out to build CCUS facilities which can capture up to 1 million tonnes per annum of CO2, expandable to 10 million tpa in future.

BP chief executive Bernard Loone underlined China is increasingly looking for low-carbon energy, but it also needs to be secure and affordable. “That is a complex challenge. We need different fuels including oil and gas,” he said, stressing: “Now we see real momentum behind CCUS.” 

China’s powerful National Development and Reform Commission (NDRC) has carved out a greater role for coal in the country’s electricity mix in the face of high gas prices and fluctuating output from renewables. NDRC vowed to strictly control the coal-to-gas switch and 50 GW of a total 106 GW of approved new coal-fired capacity already went into construction. 

As the Chinese economy emerges from strict Covid-restrictions, the Asian powerhouse is forecast to consume one-third of global electricity supply by 2025, up from one quarter ten years earlier. “China will need more electricity than the EU, the US and India combined,” said Keisuke Sadamori, the International Energy Agency's (IEA) director of energy markets and security. 

Friday, 31 March 2023 06:00

Chinese LNG Demand Outlook

There were 1.93mmt of LNG on the water with destinations in China according to our market visibility at the time of writing on 29 March. These cargoes had an estimated delivery horizon of 22 April. None of these inbound cargoes had originated in the United States, however, whilst more than a third (0.65mmt) was derived from Qatar followed by 0.59mmt from Australia. One cargo of 0.12mmt was broadly headed for China but still had to declare its destination terminal.