With imports meeting half of gas demand that’s good news for Australia’s LNG exporters.
The bad news is that import costs have fallen 34% year-on-year, HSBC has found.
The bank calculated that China’s demand for gas supply totals 73 billion cubic metres per annum, with around 10Bcm extra being put into the system from additional domestic production (4.6Bcm), a 27% increase in pipeline gas (3.3Bcm) and LNG imports up 20% (1.7Bcm).
Chinese domestic production is now 48Bcm, primarily from Sichuan basins, the Fuling shale gas fields and offshore Chinese production.
However, the percentage of domgas production in the market has fallen from 80% in 2011 to 65% despite steady production from PetroChina and an 18% boost from Sinopec to 24.5Bcm.
Sinopec and CNOOC increased imports from Australia, Qatar and Papua New Guinea in the first quarter of 2016, and HSBC expects demand will lift for all sources of gas once more cities pass on mandated price cuts declared in November 2015.
HSBC said around half of the 20 major cities were still to fully pass on the gas price cuts, but when they do that should drive up demand from residential and industrial customers, displacing more coal-powered generation in line with government policy to help tackle China’s crippling pollution problem.
Pipeline gas from Turkmenistan and Uzbekistan now costs around $US5.4/MMBtu ($A7.2/MMBtu) while the landing price of LNG was $6.9/MBtu, the lowest level since 2010.
Prices last year were closer to $9/MMBtu.
LNG imports in April 2016 increased 22% year-on-year and 11% month-on-month to 2.57Bcm, and Australian gas was the cheapest, while gas from Qatar was the most expensive, however the price gap between different sources continues to contract, implying increased competition among the LNG sellers.
And, while there is significant regasification capacity to be added in 2016, the utilisation rate is expected to remain subdued.
China has 12 regas terminals capable of taking 38.5MMtpa (52.5Bcm) and HSBC expects three more will come on this year, taking its total potential to 47.5MMtpa of imported gas.
Sinopec’s 3MMtpa Guangxi receiving terminal started operation in April, while PetroChina and Kunlun Energy are expanding the Jiangsu and Dalian terminals to around 6MMtpa each.
That’s despite the fact most regas terminals are operating at less than have of their utilisation rate.
“In the future, LNG regas terminal operators may seek to open up its terminals to third-party use to raise its utilisations but the progress may be slow,” HSBC said.
