A surge in global LNG prices to record highs, growing geopolitical uncertainty and domestic demand destruction mean that China's LNG imports may not show much growth in 2022, forcing the country to depend more heavily on pipeline gas imports and domestic gas production.
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Register NowThe energy sector is now factoring in a sustained period of high prices as Russian oil and gas is increasingly alienated from global supply. LNG trade flows are expected to change if European gas and LNG prices continue to surge, pulling away more LNG cargoes from Asia.
"Commodity Insights no longer expects Chinese LNG imports to grow in 2022 versus 2021 as spot prices are expected to remain above $25/MMBtu for the remainder of the year," said Jeff Moore, Manager, LNG Analytics Asia at S&P Global Commodity Insights. China's total LNG imports were nearly 80 million mt in 2021, making it the world's largest LNG importer, according to customs data.
Countries like India and China are likely to soak up more distressed Russian LNG at discounted prices as other large Asian importers like Japan, South Korea and Taiwan support Western sanctions.
"It is possible that Russian supplies which may have gone to Europe could end up in China, but this would likely just cause a re-shuffling of supplies and not necessarily impact total Chinese imports as they would just import less from other sources, like the US for example," Moore said.
The cancellation of Nord Stream 2, previously assumed to start up in October 2022, will impact Asia's LNG supply fundamentals in the winter of 2022, as most of that volume will have to be replaced by LNG on the back of demand switching and destruction in Asia, according to S&P Global.
Underutilized terminals
China's state-owned oil and gas infrastructure company China Oil & Gas Piping Network Corp., also known as PipeChina, allows gas companies to apply for unused capacity at its LNG terminals. Once the capacity is awarded it signs terminal use agreements with the approved applicants.
Spare LNG receiving capacity at seven LNG terminals affiliated with PipeChina was around 10 million mt for April-December 2022, according to data released March 9. This is equivalent to 36,789 mt/day, or 48.7% of the seven terminals' combined capacity of 27.6 million mt/year or 75,616 mt/day, according to calculations based on PipeChina's data.
The latest spare capacity PipeChina released for April-December is about 285,000 mt higher than the capacity it released in February for the same period. This implies that some companies have postponed or cancelled bookings for slots due to lack of demand, market sources said.
Market participants said several LNG terminals in China were underutilized and many companies had withdrawn from the LNG procurement process as global LNG prices had surpassed domestic gas prices.
Gas companies said they still had unutilized slots with PipeChina from last year and were negotiating to postpone the usage. The companies were being given the flexibility to decide as PipeChina was aware of the situation in the international market.
"PipeChina is quite understanding as they know that we can't buy in this environment," a market source said. "It's a complicated situation in China where we are very short but we can't buy due to high spot prices and low domestic prices," another Chinese market participant said.
High prices
High prices are also making it difficult for international companies to place barrels in China.
PipeChina and Shell's China trading arm on Feb. 22 signed a memorandum of cooperation and two terminal use agreements for the Yuedong LNG and Beihai LNG terminals for 2022. Shell has yet to finalize LNG shipments to China this year because of the high prices, according to a market source.
The Platts JKM for April eased to $36.457/MMBtu March 10, a few days after hitting a record high of $84.76/MMBtu March 7 on rising prices in Europe. However, China's overall trucked LNG price for both coastal terminals and inland plants averaged Yuan 8,049/mt on March 9, data from the Shanghai Petroleum and Natural Gas Exchange showed, which equates to around $24/MMBtu.
China's trucked LNG price hit a record high -- breaching Yuan 8,500/mt -- across the country Feb. 28, but only stayed above that level for three days before retreating due to thin market activity, traders said. They said trucked LNG prices cannot be sustained above Yuan 8,000/mt.
PipeChina currently operates seven LNG receiving terminals -- Liaoning Dalian, Tianjin Nanjiang, Jieyang Yuedong, Shenzhen Diefu, Guangxi Beihai, Hainan Yangpu and Guangxi Fangchenggang.
The LNG terminals are located along China's coastal cities from the northeast to the south, with a combined capacity that accounted for a quarter of China's total LNG receiving capacity of around 105.8 million/year at the end of 2021.