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Watch: China's LNG imports set to surge this winter with or without tariffs on US supply

As we move out of the summer and turn our attention to winter, all eyes are turning towards China. Total LNG imports to the country continue to push higher and are surely going to increase to new highs this winter as heating demand picks up. New regasification capacity will certainly help to handle the influx of supply, but utilization is expected to stay elevated. Furthermore, a recent proposal for tariffs on US LNG could complicate things this winter. With the uptick in imports, where will these volumes come from? Jeffrey Moore, S&P Global Platts Analytics Manager for LNG in Asia, examines the market.

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Welcome to The Snapshot, a series examining the forces shaping and driving global commodities markets today.

As we move out of the heart of the summer and start to gear up for winter in the main natural gas consuming countries in the Northern hemisphere, all eyes are turning towards China. Specifically, the question is just how much LNG the country will import this year.

Through August, S&P Global Platts Analytics estimates LNG imports to China are up a staggering 45% on year through the same period in 2017.

So far the country has imported roughly 32 million tonnes of LNG and is expected to import more than 50 million tonnes in total this year, which is up roughly 12 million tonnes above last year's total LNG imports. This number is important because Chinese contracted capacity for LNG is not increasing nearly as much in 2018, which implies China will need to procure more than 7.5 million tonnes of LNG on the spot market this year. This could equate to more than 100 cargos over the course of the year.

One of the main factors aiding the growth in Chinese LNG imports this year is the addition of new infrastructure.

China has already added 10 MTPA of regasification this year, which includes the countries first fully independent terminal in China's eastern province of Zhejiang, just south of Shanghai. This new infrastructure is expected to come in handy over the coming months as imports surge even higher during the winter months.

There was much talk about the high utilization rates of Chinese LNG regasification last year, and this year we should see more of the same, with total regasification capacity utilization expected to average more than 76% from November through March of next year. This compares to an average utilization rate of just under 75% during the same period a year ago. We also expect regasification utilization to max out again about 90% during the heart of this winter, similar to what happened last winter.

With it pretty well understood that China is going to import a significant amount of LNG this upcoming winter, it's important to ask where it's going to come from.

The recent proposal to impose a 25% tariff on US LNG to China also complicates the picture. Although this tariff isn't in effect just yet, the implications are significant as China represents the largest growth market moving forward while a significant amount of liquefaction capacity from the US is set to ramp up over the next several years. When you factor in all that expected spot-buying by China this year and it could muddy things up even more.

However, I think this is an important place to point out that the US currently doesn't represent a significant supplier for Chinese LNG imports. In fact, the US has never supplied more than 8% of total Chinese LNG imports in a given month. As China's appetite for LNG has grown, we've seen a lot more volumes move in from Australia help feed it. This will be an important trend to watch as spot prices in Asia are expected to be more than 1 dollar and 50 cents per MMBtu higher this winter compared to last, so China could be paying more for these volumes than they did last year. We'll certainly be following along as this unfolds.

Until next time on Snapshot, we'll be keeping an eye on the markets.