Chinese LNG imports in February dropped by 1.19 Mt (23%) from January’s record 5.18 Mt but still climbed by 1.56 Mt (68%) y/y to 3.99 Mt. Over January-February, LNG takes hit 9.17 Mt, a massive 3.37 Mt (58%) higher y/y, despite the slowdown in industrial sector gas demand during the week-long Chinese New Year holiday in February. Pipeline imports also picked up strongly in February, by 0.40 Mt (16%) y/y to 2.95 Mt.
LNG takes from China’s biggest suppliers, Australia and Qatar, expanded the most y/y, by 0.78 Mt (93%) to 1.63 Mt and 0.29 Mt (52%) to 0.84 Mt respectively, followed by US volumes, which grew by 0.19 Mt y/y to 0.26 Mt. Malaysian and Indonesian volumes shrank by 0.07 Mt (20%) and 0.02 Mt (5%) y/y despite being the lowest-priced sources (6.21 $/mmbtu and 7.45 $/mmbtu respectively). Angola delivered 0.7 Mt in February—from zero in February 2017—despite being the highest-priced LNG source for China at 12.16 $/mmbtu, 2.51 $/mmbtu more expensive than Qatari LNG.
Growth in pipeline gas imports were led by Kazakhstan, up by 0.18 Mt y/y (from zero reported volumes in February 2017), reflecting flows through its ‘new’ 5 bcm/y pipeline (online since October 2017), and were priced at the border at 4.71 $/mmbtu. Flows from Uzbekistan (+0.15 Mt y/y) also increased strongly, but were still 50% lower than February 2016 numbers (there were no reported imports in February 2017). Imports from Myanmar also stepped up by 0.09 Mt to 0.32 Mt despite pricing at 9.11 $/mmbtu. Imports from Turkmenistan totalled 2.29 Mt, lower y/y by 0.03 Mt.
Aggregate domestic production for January-February, as published by the NBS, was 26.20 bcm (+1.05 bcm, 4% y/y) while coalbed gas output totalled 1.18 bcm over the first two months of the year, although this was 6% lower y/y.
China’s peak winter demand and the seasonal surge in natural gas consumption has been fading through March as the winter ends on a mild note. Temperatures are forecast to stay well above normal through to end-March but will cool through early April, returning to more normal temperatures. But, while Chinese end-user gas demand will go into the summer seasonal lull, underlying gas demand growth will remain strong. Even as the Chinese government assesses the causes for the supply crunch this winter, it had already announced an extension of its coal-to-gas switching programme. The central government plans to phase out coal-fired residential heating systems and small coal-fired industrial boilers in 4 million households and industrial plants this year, slightly up on the 3.94 million users converted in 2017.
The government is now increasingly emphasising the need to build more gas storage capacity and infrastructure. The gas production and supply companies are echoing these priorities. Key infrastructure additions for summer 2018 include Sinopec’s 4.0 bcm/y Wen underground gas storage site, which is set to inject working gas in May. PetroChina and Sinopec are both expanding capacity at their Jintan salt caverns at Changzhou in eastern Jiangsu province. PetroChina is working on the second phase of the project, with a view of expanding working capacity to 1.71 bcm by 2020. Private-sector distributor Towngas China also hopes to complete construction of a salt cavern storage in Jintan by 2020. PetroChina is acquiring land for a facility with 3-5 bcm capacity in Heilongjiang province to support the ramp-up of the Power of Siberia pipeline in 2020. Finally, the company also plans to build eight gas storage sites in the Sichuan-Chongqing region with combined capacity of 22 bcm. None of these projects will impact the 2018 balances. In addition, tanks at LNG receiving terminals that are already under construction will come online. Regassification capacity additions are as high as 10 Mtpa this year, including ENN’s 3 Mtpa Zhoushan terminal and CNOOC’s 4 Mtpa Diefu terminal.
With underlying demand and import infrastructure both expanding, we expect Chinese gas demand growth to remain strong in 2018. Natural gas pricing reform will be a major area of focus for policy makers, with Hunan province recently announcing plans to liberalise natural gas prices in transportation starting on 1 April. Other provinces are also mulling price reductions and/or liberalisation. This will remain a key area to watch, as shifting price levels could affect gas demand growth. Overall, we still think that another year when the government is stimulating underlying demand risks a repeat of acute winter shortages, so delivering infrastructure investments and filling storage tanks in a timely manner will be important to get through another challenging winter. Storage injections will support summer imports this year. We forecast that LNG imports will be higher y/y by 1.9 Mt in Q2 18 and will add another 2.0 Mt in Q3 18. Over all of 2018, we expect Chinese LNG imports to now grow by 11 Mt y/y, revised upwards by 1 Mt on our previous forecast on the policy commitment to again pursue significant levels of the coal-to-gas switch. We expect a further 8.9 Mt in incremental growth in 2019.