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Analysis: China LNG demand growth to slow in 2019

Singapore — China LNG demand is expected to rise further this year in line with its industrial and residential gas use, but the pace of that growth is set to slow as domestic gas production and pipeline imports pick up.

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The slowdown in China's economic growth is another bearish factor, but one with negligible impact on gas consumption, which is more responsive to fuel-switching policies, according to S&P Global Platts Analytics.

The Chinese government's resolve to boost gas pipeline connectivity and storage capabilities will help ease distribution bottlenecks and seasonal demand shortages, reducing the country's dependence on LNG to meet demand fluctuations in the northern winter demand centers.

Despite these bearish factors, China, the world's second-largest LNG importer, will remain the biggest contributor to global LNG demand growth, with Platts Analytics forecasting consumption to exceed Japan's by 2022 at 73 million mt a year.

China's gas demand is forecast to rise 11.4% on the year to 308 Bcm in 2019, less than the previous forecast of 16.6% growth, according to a recent report from China National Petroleum Corp.

Chinese gas demand growth vs GDP growth uncorrelated

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More than half of that demand will be met by domestic upstream production, which is forecast at 171 Bcm in 2019, up 6% from 2018, as state-owned PetroChina continues to expand its upstream shale gas resources, CNPC said.

This means an additional 15 Bcm of gas would be needed to meet consumption in 2019.

With pipeline imports expected to increase by 5 Bcm this year -- mainly via the Central Asia-China gas pipeline--the remaining 10 Bcm will likely come in the form of LNG imports, according to Platts Analytics.

Chinese LNG and gas pipeline imports growth rate converges

Upstream production is rising after the government announced plans to extend subsidies on unconventional natural gas production through 2025 and increase domestic output to 200 Bcm/year by 2020.

"This goal is ambitious and implies production would need to grow by an average of 17.5 Bcm/year, compared with average growth of 8.9 Bcm/year over the past four years," Platts Asian LNG Analytics Manager Jeff Moore said. "However, even if production reaches our assumption of 190 Bcm, it still implies faster growth."

GREATER CONNECTIVITY, STORAGE

In 2018, the National Development and Reform Commission, the Chinese government's economic planning agency, launched a series of projects to enhance south-north gas supply connectivity to Hebei and Shandong, where natural gas tends to be in short supply over the winter.

These projects follow a critical supply imbalance in 2017, when poor south-to-north pipeline connectivity and limited truck deliveries forced northern LNG terminal operators to exceed nameplate capacity to meet the demand of more than 4 million households that converted their coal-fired boilers into gas-fired ones earlier in the year.

The expansion of underground gas storage in northeast China has also alleviated distribution network bottlenecks and helped stabilize seasonal demand and price fluctuations in the broader Asian LNG markets.

China's biggest underground gas storage is being built by Liaohe Oil Field Company, a CNPC subsidiary, on Bohai Bay, a strategic location and home to a natural gas pipeline network that connects the heavily industrialized neighboring regions of Beijing, Tianjin and Hebei province.

RESILIENT LNG GROWTH

Despite numerous bearish factors, there will always be upside potential for LNG imports in China. The government's targets to reduce air pollution and move to cleaner burning fuels exemplified by its Blue Sky Policy and the Five-Year Plan will continue to drive gas consumption.

China added 10 million mt/year of receiving capacity with three new LNG terminals in 2018, while plans to increase its existing 70 million mt/year regasification capacity have been recently submitted to the government for review.

LNG send-outs from terminals have also been expanded, with Sinopec's Tianjin terminal allowing 24-hour loading of LNG on trucks to maximize efficiency.

-- Lucie Roux, newsdesk@spglobal.com

-- Abache Abreu, newsdesk@spglobal.com

-- Edited by Jim Levesque, newsdesk@spglobal.com