LNG Journal
China appears to have taken advantage
of low prices in the spot market thus far this year to boost its gas storage
and absorb some of the extra gas that would otherwise have been sent to Europe.
But as storage facilities fill and spot prices rise, the intake is likely to
diminish over the summer, redirecting more LNG cargoes to Europe and
accelerating this region’s fill rate, Reuters claimed in a report. China does
not publish statistics on gas, oil or coal inventories, as they are considered
commercially sensitive and a matter of national security. However, the country
consumed a record 55 mill tonnes of gas from overland pipelines and seaborne
LNG in the first five months of 2024, according to data from China’s General
Administration of Customs. This intake rose from 47 mill tonnes in the first
five months of 2023 and 46 mill in the same period of the previous year, when
Russia’s invasion of Ukraine sent spot gas prices soaring and comfortably
exceeding the pre-invasion record of 50 mill tonnes set in the first five
months of 2021.
China’s LNG
imports were above previous year levels each month between January and May, and
pipeline imports were also above the levels in every month except April. At the
same time, domestic production surged to a record 76 mill tonnes in the first
five months of 2024 from 72 mill in 2023, 68 mill in 2022 and 64 mill tonnes in
2021. Output from Sichuan, easily the largest gas-producing province, has
doubled since 2016, as the Chinese Government prioritised expansion of domestic
fields to reduce reliance on imports. As a result, the total amount of gas
available from domestic production and imports hit a record 130 mill tonnes in
the first five months of this year, up from 118 mill in 2023 and 114 mill in
2021.China continued to connect more urban households to its gas network to
reduce coal burning and improve air quality. But the huge increase in the
amount consumed thus far this year far outstripped additional demand from households
and industry. Much of the extra imported gas has likely been used to top up
domestic storage after inventories were allowed to run down in 2023 and 2022. China
has a long tradition of actively using government run inventories to stabilise
commodity prices, which has been seen as a core function of the state. Today,
there are signs that this is being applied to gas via changes in LNG imports.
China’s
importers have contracted large volumes of LNG from Qatar, Australia, Malaysia
and many other smaller exporters, but in some cases the buyers have been able
to insist on flexibility to resell to third countries. As a result, China can
adjust LNG imports and inventories in response to changes in spot market
prices. In 2022/23, flexibility was employed to trim LNG imports and run down
inventories in response to surging spot market prices. A year later, this
strategy was reversed to take in more cheap gas and refill storage. However,
spot market prices for gas delivered to Northeast Asia climbed to an average of
more than $12 per MMBtu thus far in June, up from less than $9 in February and
March. As prices are no longer cheap, compared with previous years. China is
likely to reduce discretionary purchases and slow the rate of inventory
accumulation. As it backs away from the spot market, more LNG will be sent to
Europe, as well as price-sensitive customers in south and southeast Asia,
Reuters said. Meanwhile, a subsidiary of China National Offshore Oil Corp
(CNOOC) has completed the construction of China's largest LNG storage base,
located at Yancheng in Jiangsu Province. The base has a combined LNG storage
capacity of 2.5 mill cu m, the company said, according to a Chinese Government
post, made up of four 220,000 cu m tanks and six of 270,000 cu m.Once fully operational,
the new storage base will have the capacity to process up to 6 mill tonnes of
LNG annually, equivalent to 8.5 bill cu m of natural gas.