China LNG buyers return to spot market, but coal to keep demand capped

Beijing Gas Blue Sky Holdings

20/03/2023 01:00

(Repeats March 17 story without changes)
    By Emily Chow, Chen Aizhu and Andrew Hayley
       SINGAPORE/BEIJING, March 17 (Reuters) - Chinese
liquefied natural gas (LNG) buyers have resumed spot purchases,
drawn by easing prices and recovering domestic demand,
potentially increasing competition with Europe for supplies.
    Economic challenges and a slowdown in the country's efforts
to switch from coal to gas could limit demand growth of the
cleaner fuel, however.
    China could use between 385 billion and 400 billion cubic
metres (bcm) of gas this year, at least 6% more than in 2022, as
new terminals come online and economic recovery drives higher
industrial and power demand, analysts say. 
    This comes after Chinese demand fell last year for the first
time in two decades as stringent pandemic measures suppressed
economic activity. Chinese spot buying largely ceased during
winter.
    But a warmer than expected winter sent spot prices  LNG-AS 
lower. In response, Beijing Gas bought an April delivery cargo
this month, and, after prices hit a near two-year low of $13.50
per million British thermal units last week, CNOOC bought
another two, said industry sources.
    An increase in Chinese spot purchasing could intensify
competition of LNG supplies among buyers in an already tight
global market, potentially pushing up prices - especially since
Europe will need to replenish gas stocks before the next winter
season.
    
    
    The anticipated start-up of six new import terminals this
year would also contribute to increasing LNG arrivals, said JLC
consultancy analyst Ricki Wang.  
    The new terminals include the 5-million-tonne-per-annum
(mtpa) Tianjin Nangang terminal of Beijing Gas Group, Guangzhou
Gas's 1 mtpa Nansha terminal and the 6 mtpa Chaozhou terminal by
Huaying Natural Gas. They will need supplies to begin operating.
    However, analysts are not expecting a sharp rebound for LNG
demand, because a supply shock that drove up LNG prices last
year has prompted China to tone down its effort to replace coal
with gas.
    Increasing gas supply from domestic production and by
pipeline from Russia could also LNG limit imports, especially
spot purchases, say analysts.
    "Large amounts of (long-term) contractual volumes are
expected to meet most of China's LNG import demand. Therefore,
not much spot buying is required," said Rystad Energy analyst
Wei Xiong.
    She added, however, that China's gas demand recovery pace
should be monitored.
    "If it recovers faster than expected, contractual volumes
may no longer be able to meet demand, then extra volumes from
the spot market are needed."
    Meanwhile, because Russian supply is expected to rise,
analysts forecast 2023 piped gas imports at 69 billion to 80
billion cubic metres (bcm), up from 63 billion cubic metres in
2022. With more volume due under long-term contracts, LNG
arrivals are expected to rise to between 68 billion and 73
million tonnes from 63.4 million tonnes.
    
        
    SLOWER GAS TRANSITION    
    China has been relying on gas - used largely in industrial
and residential sectors - as a bridge fuel in its effort to
reduce coal usage and reach peak carbon emissions before 2030
and carbon neutrality by 2060.
    It has managed to cut coal's share of its energy mix to 56%
last year from 70% in 2010.
    But the curbing of gas imports amid high prices has slowed
those efforts. Some local governments have installed more gas
distribution capacity than can be used.
    "The slowdown we're seeing now is because the number of
users that have pipelines laid to their homes don't really have
gas to use," said an executive with a large private gas
distributor.
    
    
    China is also prioritising stability in economic growth and
security in energy supply, said Jenny Yang, senior director,
greater China gas research and analysis at S&P Global Commodity
Insights.
    "The coal-to-gas policy, the key driver behind Chinese gas
demand growth in recent years, is no longer a top priority given
the higher cost of natural gas compared with alternatives," Yang
said.
    China's state planner this month also underlined a greater
role for coal in electricity supply. It called for an increase
in reliable generation, such as that offered by coal-fired power
stations. The agency also said it would "strictly control" the
expansion of projects replacing coal with gas.
    A slowing coal-to-gas shift would mean the share of coal in
China's energy mix will hold for longer, said Kpler analyst
Ryhana Rasidi.
    "However, we should not ignore the fact that natural gas
demand and production will still grow alongside coal," she said.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
China 2023 total gas demand forecasts    https://tmsnrt.rs/40iZ78t
China 2023 LNG imports forecast    https://tmsnrt.rs/3n1eeVL
China 2023 piped imports forecast    https://tmsnrt.rs/3yI0bXw
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Emily Chow and Chen Aizhu in Singapore, Andrew
Hayley in Beijing; Editing by Florence Tan and Bradley Perrett)
 ((emily.chow@thomsonreuters.com; Reuters Messaging:
emily.chow.thomsonreuters.com@reuters.net))