China’s imports of liquefied natural gas (LNG) are set to hit record levels in November, with demand due to peak over the cold winter months as millions of households shift from burning coal for heating to using gas, driving up prices for the fuel.
Although the world’s No.2 economy has significant local gas reserves and can also import via pipelines, most of the jump in demand will be met by LNG tankers.
Shipping data in Thomson Reuters Eikon shows Chinese LNG imports will reach 4 million tonnes for the first time in November, breaking the 3.7-million tonne record from last December.
That comes as swathes of residents across northeast China have had their households converted from coal to natural gas for heating this winter. A colder-than-usual start to winter is also stoking appetite for gas, with Thomson Reuters Eikon data showing the particularly frigid spell will last until at least mid-December.
Growing appetite for gas pushed domestic LNG prices to record highs of over 7,000 yuan ($1,060) per tonne this week. Although China’s LNG demand is still only half that of top consumer Japan, traders say China has become the key driver of Asian spot LNG prices , which have jumped by 80 percent from mid-2017 to almost $10 per million British thermal units, their highest since January, 2015.
“We’ve been supplying a lot of China’s LNG from the spot market, bringing a fair amount of liquidity to a market otherwise dominated by long-term supply contracts,” said an LNG trader in Singapore, declining to be identified as he was not authorised to speak about ongoing deals.
Surging Chinese demand has tightened Asian LNG markets, which since 2014 have been marked by oversupply on the back of rising exports.
Going into 2018, analysts say much will depend on the speed of a production ramp-up in Australia, where the last of a number of mega-projects is being completed after more than a decade and at a cost of well over $200 billion.
“Australia will export 58.1 million tonnes of LNG in 2017-18, based on the assumption that some terminals will run well below nameplate capacity,” National Australia Bank (NAB) said on Wednesday. “This forecast is somewhat below the Department of Industry’s forecast of 63.3 million tonnes over the period.” Australian exports stood at 52 million tonnes in 2016. With Royal Dutch Shell’s Prelude floating LNG project in Western Australia and Ichthys, a massive project led by Japan’s Inpex in the north of Australia, about to be completed, Australia’s export capacity could hit 85 million tonnes next year, topping that of current leader Qatar.
Traders said Australia’s rising capacity would ensure LNG markets will remain well supplied, despite China’s thirst.
“Available export capacity remains well in excess of import capacity, so there’s no need to panic. Everybody who needs LNG can get it,” said the LNG trader.