Cold snap fails to boost China domestic LNG prices ahead of holiday season

A severe cold snap that hit China this week has briefly stemmed the decline in domestic trucked LNG prices, but the price outlook remains bearish with the Lunar New Year holidays approaching when economic activity and gas demand are expected to be slow, market sources said.

China's Central Meteorological Observatory (CMO) issued the first cold snap warning of 2024 on Jan. 19, saying the central and eastern regions would be hit over Jan. 20-23, and temperatures in parts of southern China would fall to zero degree Celsius with heavy snowfall in some areas.

Demand from city gas distributors increased due to the cold snap, which saw some inland LNG plants and coastal LNG receiving terminals raise their trucked LNG prices by an average of Yuan 100/mt and Yuan 150/mt on Jan. 22 in Northwest China and the Yangtze River Delta regions, respectively, domestic gas distributor ENN Group said in its trucked LNG report for that day.

In addition to the cold snap, a sharp decline in trucked LNG prices in the past few weeks also triggered some buying interest for restocking, which helped balance out prices over the last couple of days, a trade source in eastern China said.

China domestic trucked LNG prices had fallen by around Yuan 1,000/mt in the last two weeks, following a downward trajectory in international prices as sellers competed to attract downstream buyers, according to domestic trade sources.

However, gas demand from industrial users did not rise much due to the cold snap as some factories and companies have been gradually closing down in preparation for the approaching Lunar New Year holidays, ENN said, noting that trucked LNG prices were broadly unchanged in the heavily industrialized Pearl River Delta region and even fell by Yuan 100/mt in the Beijing-Tianjin-Hebei industrialized region on Jan. 22.

The auction price for PetroChina Natural Gas Sales Western Branch's latest round of 82 million cu m pipeline gas for delivery Jan. 21-31 settled at Yuan 2.71-2.76/cu m Jan. 19 afternoon, which was down 5% from the previous round and equals to around Yuan 4,620-4,692/mt after processing into LNG, according to ENN. Fluctuations in the auction price are an indicator of demand levels.

Besides, China's existing natural gas inventory appears sufficient to meet demand from a cold spell lasting shorter than a week, which is also expected to cap the recent price growth in some regions, another trade source in Beijing said.

The trucked LNG prices for both coastal terminals and inland plants averaged around Yuan 4,817/mt Jan. 22, up slightly from Yuan 4,785/mt on the previous trading day, but still, Yuan 1,244/mt, or 21%, lower than the peak winter price on Dec. 22, data from the Shanghai Petroleum and Natural Gas Exchange showed.

The Lunar New Year holidays will last eight days this year, starting from Feb. 10 to Feb. 17. Many factories start to shut operations one to two weeks ahead of the holidays, and resume operations after the Lantern Festival which falls on Feb. 24 this year, leading to thin business activity during this period.

In the Asian LNG market, buyers are likely to remain price-sensitive, with the lower spot LNG prices influencing buying interest, trade sources said.

With the Chinese LNG market in a backwardation structure as winter ends, importers who are mainly watching March cargoes around $9/MMBtu in the international market, might not turn a profit if domestic LNG prices continue to dip below Yuan 3,500-4,000/mt during February and March, trade sources noted.

Many Chinese buyers have bidding interest below $9/MMBtu, and there could be more activity if prices fall within the $8-$9/MMBtu range, they said.