China’s high LNG terminal capacity use tempers winter import growth
Capacity utilization rates of over 130% at China’s northern and eastern LNG terminals are limiting the scope for significant import growth, despite surging domestic prices due to robust winter demand. Chinese market participants said they remained cautious about the country’s LNG import outlook over December and January as terminals were already facing capacity bottlenecks and logistical contraints. The high terminal capacity use and pipeline supply obligations mean that China’s three state oil companies — CNOOC, PetroChina and Sinopec — could struggle to capitalize on soaring prices in the domestic, trucked LNG market, sources said. The three firms operate most of the LNG import terminals in north and east China. “There’s a limit to how much [LNG cargoes] the companies can import, with their northern receiving terminals already running above full capacity,” said a Chinese end-user. A second Chinese importer said shipping schedules are so “packed that it is hardly possible to take in more cargoes.” The average utilization rate at the top five north and east China LNG receiving terminals from August to November stood at 136%, according to Platts Analytics and China Customs Statistics. Capacity utilization at Qingdao, Tangshan, Rudong, Shanghai and Zhejiang terminals were at 107% over January-July.
A few of these terminals have been operating at well above capacity in some months ahead of the peak winter demand season. For example, Tangshan terminal received six cargoes, or 560,000 mt in November so far. This was despite a terminal capacity of 3.5 million mt/year, or about 300,000 mt/month.
Furthermore, obligations to deliver gas into pipelines for residential use during the winter was also limiting the amount of LNG that can be redirected into the high-margin trucked LNG market, according to a source from a state oil company. “We need to guarantee supply to pipelines, so it’s very hard to divert gas away to take advantage of [high] trucked LNG prices.” DOMESTIC LNG PRICES SURGE China’s domestic trucked LNG market prices surged in the past two weeks, driven by robust winter power demand and regional gas shortages. Average domestic trucked LNG prices in China jumped more than 47% since November 14, according to Shanghai Petroleum and Natural Gas Exchange which monitors trucked LNG transactions from 50 LNG terminals and factories. The price spike followed PetroChina’s announcements to cut gas flows to industrial end-users in Shaanxi, Shandong and Inner Mongolia. Daily industrial gas supply was reduced by up to 20% in certain Northern provinces as a winter policy measure to guarantee supply to households. In major demand centers in northern regions such as Shandong prices broke above Yuan 7,000/mt ($1,060/mt) Wednesday on supply imbalances and colder-than-expected weather in early winter, sources said. China’s soaring demand for LNG imports this year was driven by cold weather, coal-to-gas switching policy directives to curb air pollution, and the large-scale replacement of coal-fired heating with gas-fired boilers in domestic households. The country imported 28 million mt of LNG in January-October, up 47% from 19 million mt in the same period last year, closing the gap to the world’s second-largest importing nation, South Korea. The gas shortage in the north China regions was also unlikely to be resolved by transporting more volumes from South China in the near term, sources said. “The price gap between northern and southern regions is wide enough to move gas to the north, but the north is still short of gas every year,” said a fourth Chinese end-user. “The poorly built pipeline infrastructure connecting both ends can’t afford a surge in winter gas demand,” the source added.