China to add new LNG import capacity in Q4 despite term contract delays

China is expected to add 9.3 million mt/year of LNG import capacity in the fourth quarter of 2024 on new greenfield and brownfield projects, which would be the highest regasification capacity added to a country in that period, according to the latest data from S&P Global Commodity Insights.

New projects typically imply the start of new long-term LNG contracts, which would translate into higher LNG imports, but most of China's term contracts have been delayed due to various reasons, including sanctions on Russia’s Arctic LNG 2 project.

The new projects will still boost China's LNG imports in the fourth quarter and 2025, but mainly through the spot market, resulting in higher procurement activity from Chinese gas importers, like what was observed in September.

Spot procurement in 2024 included Chinese second-tier LNG importers purchasing around 10 spot LNG cargoes for delivery in October and November to prepare for the upcoming heating season, and a significant year-on-year jump of 32% in LNG imports to 7 million mt in September, partially due to the new LNG receiving capacity added in the past two months.

The availability of more LNG receiving capacity for third-party access, combined with a drop in spot LNG prices to levels acceptable for Chinese buyers, supported the growth of China's LNG demand, sources said. Storage expansion has also helped existing LNG terminals increase their utilization rates and boost LNG imports.

The spot LNG price was trending below the $10/MMBtu level in the first half of 2024 and was under $12/MMBtu in July for September delivery. Platts assessed December JKM at $13.388/MMBtu, down 16.3 cents/MMBtu on the day, and the JKM Balmo-ND derivatives at $13.43/MMBtu Oct. 17, Commodity Insights data showed.

Commodity Insights analysts and market participants said Chinese buyers remain price sensitive and in the current context of ample domestic supply, high JKM prices could suppress purchasing demand unless extreme weather conditions lead to a surge in consumption.

Without such a catalyst, large-scale buying activity may not materialize, an analyst said. China is estimated to have imported around 57 million mt of LNG in the first nine months of 2024, up around 12% year on year, customs data showed.

Delayed contracts

China is expected to add 22.3 million mt/year in LNG receiving capacity in 2024, which exceeds the 6 million mt/year added in 2022 and 20.3 million mt/year in 2023, making it a record high for the country, according to Commodity Insights.

China’s total LNG receiving capacity was 130.5 million mt/year by the end of 2023 and 110.2 million mt/year by the end of 2022, Commodity Insights data showed. The capacity is likely to exceed the 150 million mt/year mark by the end of 2024.

Despite new LNG import capacity, China will only add around 1.7 million mt/year of LNG term contract volume this year, mainly Guangdong Energy and Qatar Energy's 1 million mt/year contract for 10 years. This volume is below the 11.56 million mt/year of new contracts earlier expected to start in 2024.

Out of the 11.56 million mt/year of new contracts, 5.76 million mt/year were expected from Russia's Novatek for the Arctic 2 project, which is now under sanctions.

Additionally, a 15-year contract between Shanghai municipal government-owned Shenergy Group and British Centrica for 500,000 mt/year of LNG, which was set to begin in 2024, has been delayed due to the political situation in Mozambique, according to market sources.

Meanwhile, PetroChina's equity cargoes from the LNG Canada project are expected to be pushed to 2025 from 2024, sources familiar with the matter said.

Additionally, Unipec and CNOOC's term contracts for LNG cargoes from Venture Global's Calcasieu Pass project are also expected to be moved to 2025 from 2024, market sources said. Venture Global and its offtakers have been at loggerheads over the delivery of commissioning cargoes from the Calcasieu Pass project.

New projects

State-owned oil and gas producer and China's largest LNG importer CNOOC is expected to start its Zhuhai LNG phase 2 project and Binhai LNG phase 1 expansion project in November, adding a combined 6.5 million mt/year of LNG import capacity.

Located in the southern Guangdong province, Zhuhai LNG phase 2 will double the terminal's LNG receiving capacity to 7 million mt/year from 3.5 million mt/year, and the Binhai LNG phase 1 expansion in the eastern Jiangsu province will double the terminal's LNG receiving capacity to 6 million mt/year, data showed.

In addition, Chinese provincial government-owned power generator Guangdong Energy Group is expected to start the newly built 2.8 million mt/year Yangjiang LNG terminal in the fourth quarter after finishing the construction in August, local industry sources said.

Guangdong Energy could not be reached for comment.

Earlier in the year, state-owned Sinopec started its 6 million mt/year Huaying terminal in September, Guangdong Energy started its 4 million mt/year Huizhou terminal in August, and state-owned PipeChina started its 3 million mt/year Zhangzhou terminal in May, which sources said likely added to LNG demand last month.

China's downstream natural gas demand for the new projects will come from residential use, power generation and the transportation sectors this year, said Lu Xiao, research director for China Gas and LNG at Commodity Insights.

China’s new LNG receiving capacity additions in 2024