LNG prices soar as China buys up supplies as winter sets in

LNG prices up after China shifted millions of home to natural gas from coal

China is buying up liquified natural gas cargoes worldwide and pushing up spot LNG prices after heating systems in millions of homes in China were recently converted from coal to natural gas.

Most Asian LNG supplies are delivered under long-term contracts and prices are linked to crude oil.  But to meet surging demand, Chinese utilities are forced to purchase LNG on the spot market.

“We expect (China’s national oil and gas majors) CNOOC, PetroChina, and Sinopec to buy 30 per cent more (LNG) on the spot market in the coming three months compared with last year, to help boost supplies,” Jiang Jin, gas analyst at JLC Energy told Reuters.

“LNG terminals are running at full capacity,” she added.

According to Reuters, a similar short-term supply crunch occurred late last year, boosting spot Asian LNG prices and December 2016 imports to record highs.

With China shifteing a number of homes from coal to natural gas in an effort the reduce pollution, officials expect last year’s record to be surpassed.

“The Chinese are in panic mode. They clearly underestimated the push in demand from their gasification programme. Now they are soaking up LNG spot cargoes where they can. And suppliers are happy to deliver, at a premium,”  a trader with a major commodity merchant told Reuters.  The man requested anonymity as he is not permitted to speak publicly about prices.

Since May, Asian spot LNG prices have jumped over two-thirds to $9/million British thermal units (Btu).  Crude-linked prices are around $8/mmBtu.

“I‘m fairly certain China will break a new import record very soon and that spot prices will break through $10,” the trader said.

China is currently the third largest buyer of LNG behind South Korea and Japan, but that will likely be changed by the gasification programme.

“Beijing reiterated its commitment to growing the share of natural gas in the domestic energy mix in the recently held 9th National Party Congress as part of a broader move to tackle air pollution,” Reuters reported BMI Research said on Friday.

The major industrial province of Hebei is an example of China’s skyrocketing gas demand.

“Hebei province alone needs an extra 2 billion cubic metres (bcm) of natural gas for heating because of mandatory measures to switch industrial and residential boilers to use natural gas,” JLC’s Jiang said, referring to winter demand.

2 bcm is almost one quarter of China’s total demand.