Chinese LNG imports will see an unprecedented decline in 2022

China’s LNG imports are expected to fall more than 14% year-on-year to 69 million tonnes (Mt) in 2022, the biggest drop since LNG imports began, according to Wood Mackenzie, a Verisk company.

After solid growth in 2021, Chinese gas and LNG demand is expected to slow in 2022. Chinese gas demand (sum of production and net imports) in the second quarter fell 5% year-on-year. Weaker gas demand was due to a confluence of factors including the economic slowdown, rising gas import prices, political support for clean coal and a warmer than usual winter.

Wood Mackenzie Research Director Miaoru Huang said, “Gas-fired power was a major contributor to the absolute volume decline. In addition to the factors mentioned above, the sector has been put under pressure by the growth in the use of renewable energy.

On the supply side, domestic production rose 4.9% year-on-year in the first half of the year, while pipeline imports rose 11%. LNG imports totaled 31 Mt, down 21% year-on-year.

Huang said: “Chinese buyers have minimized their exposure to expensive spot LNG. Spot purchases have been reduced and it appears some Chinese players have been reselling shipments to the European market.”

While China remains committed to long-term climate goals, the immediate goal is to secure energy supply and stabilize energy costs. The 14th five-year national energy plan, unveiled in March, re-emphasized coal as a backstop to energy security.

In the first half of 2022, landed prices for LNG imports averaged $15 per million British thermal units (mmbtu), almost double the average landed prices during the same period in 2021. of gas imports by pipeline increased by 40%, although this increase was more modest due to a longer lag in indexing to oil prices and a larger share of the less Russian gas pipeline dear.

According to Wood Mackenzie’s latest commodity price outlook, China’s gas import prices will remain elevated for the remainder of the year. Spot LNG delivered to the East Coast provinces would cost an average of $43 per mmbtu in the second half of 2022, well above city benchmarks of around $8 per mmbtu. Oil-related pipeline and LNG contracts, as well as Henry Hub-related LNG contracts, will see prices increase from H1 2022 levels. They remain more economical than spot LNG, however, with average delivered prices between 13 and 20 USD per mmbtu.

The policy remains committed to stabilizing gas prices for “priority” sectors linked to people’s livelihoods, such as residential and space heating. Non-priority sectors are experiencing unprecedented gas price increases. As central policy allows market factors to play a more decisive role in resource allocation, cost pass-throughs become more frequent. According to reports, in the upstream suppliers’ summer 2022 and winter 2022-23 gas pricing plan, regulated gas wholesale prices in non-priority areas are 15-20% higher than city benchmarks, and for unregulated gas prices are 40-80% higher. Some volumes are proposed to be linked to Asian LNG spot prices. Such price systems, together with a relaxation of coal use, will limit the appetite of downstream buyers and plans to sell gas.

Huang said, “Electricity generation, fertilizer and chemical feedstock use, transportation and commercial gas demand are expected to decline from 2021 levels. Industrial fuel gas demand exceeds 2022 levels, but increases have been scaled back Residential and space heating will be much less impacted as their gas supply is prioritized and prices are protected.

“China is unlikely to change its coal policy as an energy security backstop in the near future. National policy is unlikely to encourage gas demand significantly due to concerns over the supply chain pressure and affordability.

“As such, we expect Chinese LNG imports to fall by 14% year-on-year to 69 Mt this year. This will be the biggest drop since China started importing LNG in 2006. In 2015, Chinese LNG imports fell for the first time, but only by 1%. Japan will once again become the world’s largest LNG importer this year. »

Nevertheless, local governments are playing a larger role in driving gasification programs. Some key gas-consuming provinces, such as Guangdong, Zhejiang and Shandong, have already set gas demand growth targets in their respective regional five-year plans, either in absolute terms or as a percentage of the energy mix over the period 2021-2025. All of these goals cannot be achieved in the face of economic headwinds and high gas costs. However, these plans reveal the potential for gas demand growth in China that could materialize with affordable gas price levels and supply chain support.

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