Home / Oil & Energy / Oil & Companies News / China’s natural gas demand may see modest recovery amid uncertainty

China’s natural gas demand may see modest recovery amid uncertainty

China’s natural gas demand in 2023 is expected to rebound from 2022 levels on the back of a gradual opening up of the economy, but high global energy prices and macroeconomic concerns will continue to pressure gas consumption levels.

“We expect Chinese gas demand in 2023 to rebound from the low base in 2022, surpassing the 2021 levels, but it will not be a ‘V-shaped’ rebound,” Jenny Yang, senior director, gas, power and climate solutions, S&P Global Commodity Insights, said.

“On one hand, a key assumption is that while China has started to relax COVID-related measures, a full exit from COVID controls will still take time and won’t likely happen until the second quarter of 2023,” she said.

“On the other hand, the economy will still be under the pressure of the real estate market downturn and weak exports.”

Yang said while China’s real GDP growth is forecast to improve from 3% in 2022 to 4.4% in 2023, renewable power generation will continue to surge, and policies to rely on domestic coal production will remain in place, which will impact gas demand growth.

As a consequence, China’s natural gas demand is expected to reach around 364 Bcm in 2022 and grow by around 6% year on year to around 386 Bcm in 2023, according to S&P Global Commodity Insights data.

The 2022 gas demand number is nearly 1.4% lower than the National Energy Administration’s 369 Bcm demand figure for 2021, making 2022’s gas demand the first year-on-year decline in history.

“Chinese natural gas demand is still expected to grow but at a much slower rate than historic levels [in 2023], up by around 6% year on year, in part due to new contracts that are expected to support LNG import growth,” Szehwei Yeo, LNG analyst at S&P Global Commodity Insights, said.

Roman Kramarchuk, Head of Energy Scenarios, Policy & Technology Analytics at S&P Global Commodity Insights, said that for commodities demand in 2023, the most important fundamental factor will be China’s COVID policy, as demand softness in 2022 due to lockdowns was a key safety valve for oil, gas and coal markets, while Europe scrambled to replace Russian energy.

LNG imports
China has been expanding natural gas import capacity and the new LNG import contracts linked to new terminals will help support imports in 2023.

China’s LNG receiving capacity is estimated to increase to 130 million mt/year by 2023 and nearly 200 million mt/year by 2025, compared with current capacity of 101 million mt/year, the Shanghai International Energy Exchange said June 15.

Around nine new LNG term contracts are scheduled to start deliveries in 2023, more than offsetting the two short-term contracts expiring at the end of 2022, according to market sources.

“Spot LNG prices will likely remain high in 2023 as Europe refills storage. China will divert cargoes like it did this year (2022) under the combined impact of weak gas demand growth and high spot prices. A price-sensitive market, China will limit spot purchases until prices fall into the $15-$20/MMBtu range or lower,” Yang said.

“At the same time, Power of Siberia pipeline imports will continue to ramp up, now that the Kovykta gas field has started production. As a result, China’s LNG imports will rise from 2022 lows but only marginally, by about 3 million mt year on year, supported by new term contracts,” Yang said.

S&P Global Commodity Insights expects China’s LNG imports to rise to around 65 million mt (89.8 Bcm) in 2023.

In November, state television CCTV reported that annual gas supply from the Russia-China natural gas pipeline’s eastern route is expected to rise to 22 Bcm in 2023, 30 Bcm in 2024, and 38 Bcm in 2025, based on the current schedule, up from around 15 Bcm in 2022.

Yang also said China will continue to look for term supply to support long-term demand growth while limiting exposure to spot market price volatility.

China signed 34 LNG contracts, including short-term, medium-term and long-term contracts, between 2021 and 2022 year-to-date, with a total contract volume of 45.91 million mt, starting delivery from 2022 to 2027, calculations showed.

Out of the 34 contracts, 15 were between China and the US with a volume of about 21 million mt/year, accounting for nearly half of the total, and five contracts totaling 11.5 million mt were with Qatar, coming a close second. This included the longest contract between Sinopec and Qatar Energy for 4 million mt/year of LNG for 27 years.

Given that China aims to hit nearly 200 million mt/year of LNG imports by 2025, it remains under-contracted, and sources have said several long-term contracts are being negotiated and could be finalized when markets stabilize in 2023.

Yang said other factors driving gas demand include weather conditions, particularly this coming 2022/23 winter — which will determine how much gas from storage needs to be replenished globally — and unplanned outages at liquefaction projects.

Other developments expected to influence gas markets in 2023 are the “14th Five-Year Plan on Natural Gas,” a key document guiding China’s natural gas market development that is yet to be published, and gas price reforms in the midst of volatile import costs.

“The key company-level strategies to watch out for include passing through costs to the downstream market in the current high-cost environment, procuring new supply to avoid exposure in the spot market, developing new LNG receiving infrastructure amid the overall low utilization of existing projects and new capacity already under construction, and proposed, new interprovincial transmission pipeline development for new supply to reach markets,” she said.

However, China is unlikely to make any major change in its approach to the role of natural gas/LNG in the energy mix in 2023.

“Using natural gas to displace oil and coal is consistent with the two long-term carbon goals of peaking carbon emissions by 2030 and carbon neutrality by 2060,” Yang said.
Source: Platts

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping
error: Content is protected !!