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Platts JKM: Asia November LNG spot prices fall on thin demand

China's high LNG terminal capacity use tempers winter import growth

Capacity utilization rates of over 130% at China's northern and eastern LNGterminals are limiting the scope for significant import growth, despitesurging domestic prices due to robust winter demand.

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Chinese market participants said they remained cautious about the country'sLNG import outlook over December and January as terminals were already facingcapacity bottlenecks and logistical contraints.

The high terminal capacity use and pipeline supply obligations mean thatChina's three state oil companies -- CNOOC, PetroChina and Sinopec -- couldstruggle to capitalize on soaring prices in the domestic, trucked LNG market,sources said. The three firms operate most of the LNG import terminals innorth and east China.

"There's a limit to how much [LNG cargoes] the companies can import, withtheir northern receiving terminals already running above full capacity," saida Chinese end-user.

A second Chinese importer said shipping schedules are so "packed that it ishardly possible to take in more cargoes."

The average utilization rate at the top five north and east China LNGreceiving terminals from August to November stood at 136%, according to PlattsAnalytics and China Customs Statistics. Capacity utilization at Qingdao,Tangshan, Rudong, Shanghai and Zhejiang terminals were at 107% overJanuary-July

A few of these terminals have been operating at well above capacity in somemonths ahead of the peak winter demand season. For example, Tangshan terminalreceived six cargoes, or 560,000 mt in November so far.

This was despite a terminal capacity of 3.5 million mt/year, or about 300,000mt/month.

Furthermore, obligations to deliver gas into pipelines for residential useduring the winter was also limiting the amount of LNG that can be redirectedinto the high-margin trucked LNG market, according to a source from a stateoil company.

"We need to guarantee supply to pipelines, so it's very hard to divert gasaway to take advantage of [high] trucked LNG prices."

DOMESTIC LNG PRICES SURGE

China's domestic trucked LNG market prices surged in the past two weeks,driven by robust winter power demand and regional gas shortages.

Average domestic trucked LNG prices in China jumped more than 47% sinceNovember 14, according to Shanghai Petroleum and Natural Gas Exchange whichmonitors trucked LNG transactions from 50 LNG terminals and factories.

The price spike followed PetroChina's announcements to cut gas flows toindustrial end-users in Shaanxi, Shandong and Inner Mongolia.

Daily industrial gas supply was reduced by up to 20% in certain Northernprovinces as a winter policy measure to guarantee supply to households. Inmajor demand centers in northern regions such as Shandong prices broke aboveYuan 7,000/mt ($1,060/mt) Wednesday on supply imbalances andcolder-than-expected weather in early winter, sources said.

China's soaring demand for LNG imports this year was driven by cold weather,coal-to-gas switching policy directives to curb air pollution, and thelarge-scale replacement of coal-fired heating with gas-fired boilers indomestic households. The country imported 28 million mt of LNG inJanuary-October, up 47% from 19 million mt in the same period last year,closing the gap to the world's second-largest importing nation, South Korea.

The gas shortage in the north China regions was also unlikely to be resolvedby transporting more volumes from South China in the near term, sources said.

"The price gap between northern and southern regions is wide enough to movegas to the north, but the north is still short of gas every year," said afourth Chinese end-user.

"The poorly built pipeline infrastructure connecting both ends can't afford asurge in winter gas demand," the source added.

--Fan Shi Yun, fan.shiyun@spglobal.com

--Edited by Jonathan Dart, jonathan.dart@spglobal.com