China’s natural gas imports reached a record 9.2 Mt in November, rising y/y by a massive 2.60 Mt (40%). LNG flows surged to 5.99 Mt (+1.93 Mt y/y) as the majors likely lined up supplies ahead of winter, in a bid to prevent supply shortages similar to those seen in winter 2017/18. All three of China’s state-owned gas suppliers (PetroChina, Sinopec and CNOOC) have been extremely vocal about their efforts to ensure adequate supplies for this winter and have added storage capacity at regas terminals and improved midstream connections. LNG imports from Australia surged m/m by 0.5 Mt to a record 2.8 Mt (+1.3 Mt y/y), while Indonesia and Malaysia also exported more LNG to China, with the m/m increase at 0.23 Mt and 0.15 Mt respectively. LNG imports from Qatar went down m/m by 0.4 Mt and were lower y/y by 0.25 Mt. China’s pipeline imports rose m/m by 0.46 Mt, reaching 3.17 Mt in November (+0.67 Mt y/y). Turkmenistan led the increase at +0.5 Mt m/m (+0.6 Mt y/y), followed by Kazakhstan (+0.2 Mt y/y). Despite a slight m/m recovery, pipeline imports from Myanmar were down y/y by 0.24 Mt.
China’s official winter season started in mid-November with record imports but warmer-than-normal weather. As a result, stocks filled. However, given the constraints of storage capacity, LNG terminal operators offered lower prices to encourage higher consumption of LNG to manage high inventories. PetroChina announced in late November that it had stored 9 bcm for the winter season, a y/y increase of 22%. China’s state-owned majors have been under immense pressure to ensure supplies for the winter and avoid the price spikes and user curtailments of 2017. PetroChina has stated it will increase utilisation rates at its 10 Mtpa Tangshan, 6.5 Mtpa Rudong and 10 Mtpa Dalian regas terminals by 70% y/y (without giving a baseline for utilisation rates or for last year’s sendout volumes), allowing it to send out 11 bcm of regasified LNG over the course of the winter. In addition, the company will take 47 mcm/d from CNOOC’s 6.8 Mtpa Dapeng and Sinopec’s 3 Mtpa Beihai terminals in the South, through pipeline interconnections, and an additional 17 mcm/d from CNOOC’s and Sinopec’s Tianjin terminals.
In addition, Xinjiang Guanghui Energy has also started operations at its third 0.16 mcm storage tank at its 0.6 Mtpa Qidong terminal. However, an expansion project, which will grow the terminal’s capacity to 3 Mtpa, is likely to be completed in early 2019 rather than in Q4 18, as the company was previously expecting.
For now, the majors’ efforts to stock up during the summer means there have been only contained bouts of tightness. During the cold spell that blew in from 10 December onwards, Shanghai’s gas consumption was reported at a record, with daily highs coming in at 40 mcm/d. CNOOC Gas & Power announced that it had supplied a record 205 mcm/d of gas nationally on the coldest day, up from its peak-day high of 173 mcm/d last year. Domestic delivered LNG prices (ex-factory gate) quoted on the Shanghai exchange posted a 26% increase from 6–20 December. PetroChina cut gas supplies to LNG liquefaction factories in Inner Mongolia and Ningxia by 30% in order to prioritise residential users. With the ongoing coal-to-gas switch, the Chinese gas market is going to be tight in the coming months, even without a severe cold snap. However, we do not expect that tightness to spill over into the global LNG market, as we think China has already bought every cargo it can physically import for the peak winter months. Still, we expect over Q1 19 that LNG imports will continue to post gains y/y, of 3.6 Mt.
While the majors have been increasing imports, they have also been looking to raise domestic production. China's November gas production rose by 10% y/y to a record high of 14.3 bcm. In the first 11 months of 2018, gas output was 143.8 bcm, up by 6.6% y/y. CNOOC announced in December that it reached a gas supply flow of just over 0.2 bcm/d, a record for the company. And as China looks to reduce investment barriers for foreign companies—as part of efforts to ease tensions with the US—CNOOC said that it had signed a series of strategic cooperation agreements with nine international companies for exploration in the deepwater Area A (15,300 km2) and Area B (48,700 km2) concessions of the Pearl River Mouth Basin (South China Sea). The nine companies include Chevron, ConocoPhillips, Norway's Equinor, Canada's Husky, Kuwait's KUFPEC, Australian independent ROC, Shell, South Korea's SK Innovation, and Total.
The majors are also focusing on unconventional reserves. CNPC subsidiary Greatwall Drilling Company announced it had drilled its first shale gas well in December in Guizhou province with the aim of achieving production capacity of 500 mcm/y by 2020, 1.2 bcm/y by 2022 and 3 bcm/y by 2025. China’s natural resources ministry said the country’s technically recoverable shale gas reserves increased by 62% y/y, reaching 917 bcm at the end of 2017. CNPC also announced that it delivered a 6.5 mcm/d increase in output from the Saman Depe gas field in Turkmenistan following the launch of four new compressor units. The field is part of CNPC’s Amu Darya River gas project, and the new compressor units will enable the gas processing plant in the Bagtyyarlyk Area A license to now operate at capacity. This will facilitate higher Turkmen natural gas exports to China, although capacity on the Chinese West-East pipelines are is nearing constraints.
In November, power generation rose m/m by 21 TWh to 554 TWh, higher y/y by 6.7%. Thermal generation—mostly by coal-fired plants—went up strongly (+42 TWh m/m, +29 TWh y/y) to 405 TWh to satisfy underlying demand growth. Nuclear generation rose modestly m/m by 2.7 TWh to 27.9 TWh, higher y/y by 5.6 TWh. Hydro output dropped sharply m/m by 24 TWh but remained flat y/y as reservoir levels were both lower m/m and y/y in November. As of 17 December, major reservoir levels were lower by 1.7% m/m and 2.0% y/y, suggesting a further decline in hydro power generation in December. Despite a m/m rise of 1.6 TWh, wind generation fell y/y by 1.8 TWh from a high base, which was the first y/y decline since 2015.