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PetroChina’s pipeline gas supply cuts unlikely to boost prompt LNG demand

Chinese state-owned PetroChina’s move to reduce its pipeline gas imports after two months of weak domestic demand due to COVID-19 is unlikely to boost short-term LNG imports because of high inventories and a slow demand recovery.

Total gas demand from the world’s largest gas importer is estimated to have increased to 70%-80% of normal levels this week, and was expected to fully recover by April as the outbreak is brought under control, but the spread of the pandemic in other countries has created new uncertainties, according to market sources.

Around 85% of factories are estimated to have restarted operations, but demand from industrial users is still weak, said a Beijing-based market source.

“Many factories and have resumed operations, but are still running at relatively low levels, as demand from their downstream users have not fully recovered yet,” a second source in southern China said.

A third source in Beijing said some Chinese buyers with spare storage capacity and no term LNG contracts are expected to enter the LNG spot market amid low prices.

Both Guangzhou Gas and Guangdong Energy in southern China have issued tenders for buying April-May and April-September deliveries, respectively, S&P Global Platts reported earlier.

Meanwhile, high inventories continue to cap demand from Chinese majors, market sources said.

“PetroChina was said to have been forced to resell part of their LNG imports into the international market in a bid to ease the tank-top situation,” a fourth LNG trader said.

The price difference between LNG spot cargoes and term contracts has narrowed as a result of falling crude oil prices, and this might reduce China’s appetite for opportunistic spot purchases, the first Beijing-based source said.

China consumed 306.7 Bcm of natural gas in 2019, data from the China National Development Reform Commission showed, equivalent to about 25.6 Bcm/month, Platts calculations showed.

Pipeline supply cuts

Pipeline gas supply from Russia and Kazakhstan has been cut by around 550 Mcm/month, accounting for 13% of PetroChina’s monthly average pipeline gas imports, according to Platts calculations.

China imported 50.1 Bcm of natural gas through pipeline in 2019 –- the equivalent of 36.3 million mt of LNG — data from Chinese customs showed. Most of these volumes were imported by PetroChina.

PetroChina declared force majeure on several of its natural gas and LNG contracts earlier this month, according to company officials.

Kazakhstan, China’s second largest pipeline gas supplier, announced it had cut natural gas supplies to China by 20%-25% last week after the force majeure notice. Kazakhstan exported 7.1 Bcm of gas to China via the Central Asia gas pipeline in 2019 –- the equivalent of 5.13 million mt of LNG — data from Chinese customs showed.

A source with PetroChina confirmed it has reduced pipeline gas imports from Kazakhstan, but declined to comment whether the force majeure was the reason.

Further, Russia’s Gazprom and CNPC, PetroChina’s parent company, agreed to temporarily shut down the Power of Siberia gas pipeline in the second half of March for a routine maintenance, according to a report from Russian news agency RIA Novosti last week, but it remains unclear how long the maintenance will last.

Another PetroChina source said last Thursday that the shutdown was part of Gazprom’s routine maintenance as the Russian supplier had not been affected by the force majeure.

The Power of Siberia gas pipeline started sending gas to China in December 2019 and is scheduled to transport 5 Bcm of gas in 2020. At full capacity, the pipeline is designed to transport 38 Bcm/year of gas to China.

PetroChina currently imports gas through three major pipelines — the Central Asia gas pipelines with a designed transportation capacity of 55 Bcm/year, the China-Myanmar gas pipeline with a designed transportation capacity of 5 Bcm/year and the northern section of the China-Russia gas pipeline, which is connected with Russia’s Power of Siberia gas pipeline.

Turkmenistan is the largest pipeline gas supplier to China. It sent 33.2 Bcm of gas -– the equivalent of 24.1 million mt of LNG — to China via the Central Asia pipeline in 2019.

It is not clear whether PetroChina has also cut gas imports from Turkmenistan.

PetroChina is the second largest LNG importer in China, with around 15 million mt/year in FOB and DES contracts. Suppliers include Qatargas, Russia’s Yamal, Australia’s Gorgon, Corpus Christi of the US, and Papua New Guinea’s PNG LNG. Besides, Shell also has a portfolio contract with PetroChina, according to S&P Global Platts Analytics.

Source: Platts

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