Commodity Tracker: 4 charts to watch this week

China's LNG imports are in focus this week, after the country's bumper offtake in 2021, while in the US, upstream operators are having to be more creative to extract shale oil from older plays. Plus, a look at trends in the corn and rice markets.

1. China becomes world's largest LNG importer in 2021

What's happening? China surpassed Japan to become the world's largest LNG importer in 2021 on an annual basis. The country was expected to reach this milestone anyway, but China's rapid suppression of the pandemic and economic rebound helped, along with domestic gas market liberalization policies that helped boost downstream gas demand.

What's next? While China continues to add LNG import capacity, the pace of natural gas demand growth is likely to slow in 2022 because of high gas prices and dimmer economic growth forecasts. S&P Global Platts Analytics expects a weaker macroeconomic backdrop, with GDP forecast to decline from 8% in 2021 to 5.1% in 2022 and record high spot LNG prices to curtail some price-sensitive industrial demand over the first quarter.

2. Most of US's shale oil is still in the ground: extracting it is getting harder

What's happening? US upstream operators are concerned over their amount and quality of unconventional acreage. The reasons: shale producers drew down 2,500 drilled but uncompleted (DUC) wells in 2021 to shore up production, but these are running low. In addition, the Bakken Shale in North Dakota and Eagle Ford Shale in South Texas are mature plays and Tier 1 acreage is decreasing. Finding the proper well spacing has reduced available inventory.

What's next? Producers are experimenting to extract more oil and gas from old plays. Recovery rates from unconventional reservoirs are about 10% of oil and gas in place, so operators are trying to extract more. They are drilling longer horizontal well legs of 15,000 feet versus more typical 8,000-10,000 feet which has lifted recoveries about 2% to 3%. They are also "refracking" older wells, applying enhanced oil recovery to the rock (which works best in the Eagle Ford) and are simultaneously drilling two horizonal wells, although mechanical challenges have cropped up. Or they can simply acquire acreage from other companies.

3. Dry weather conditions push up local corn prices again in Brazil

What's happening? Corn prices in Brazil have started rising again, reaching levels seen in August 2021. Drought in Brazil's southern states has hit first corn crops and yield is seen lower than the initial expectations. Producers have become reluctant to sell, while consumers need to replenish their stocks, driving prices higher. Since the bulk of the corn supply for feed manufacturers comes from the southern states during this period, these are likely to be eager to secure feed inputs despite the record corn output projections for 2021-22.

What's next? Dry weather is also affecting corn crops in Argentina. Although Brazil is among the world's largest exporters of corn, the southern states often import from Paraguay and Argentina as it is cheaper than transporting corn from the Midwest region of Brazil, where the bulk of the country's corn crop is grown. If the dry weather conditions persist in Argentina, corn supply could tighten in the short term for Brazil, which in turn would offer support to local corn prices.

Commodities 2022: Rocky road for corn exports in H1 amid weather disruptions

4. Australia eyes bumper rice harvest and potential export opportunities

What's happening? Australia is on the verge of harvesting its largest rice crop in at least five years. Irrigation water prices have dropped significantly in the past year, enabling farmers in Australia's rice bowl of New South Wales to vastly increase planted area. The USDA is projecting that paddy output will increase by 75% on the year to 800,000 mt. ABARES projected that in New South Wales alone, production will increase to 857,000 mt.

What's next? The projected increase in crop size will provide Australia's only major marketer – SunRice – with multiple opportunities for 2022. It is highly likely that Australia, which almost exclusively exports Japonica rice, will dust off and make use of existing quotas and free trade agreements that have been neglected for years due to drought-affected production. The big question is be how much it can insert itself into other markets, such as global origin Japanese tenders and the Middle Eastern market.

Reporting by Eric Yep, Starr Spencer, Mugunthan Kesavan and Peter Storey