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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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China Is Single-Handedly Solving The Gas Glut

Natural Gas

While there’s no secret that China has increased its natural gas usage, at least for those that follow energy developments, this winter’s gas demand for the country of 1.3 billion still caught many off guard.

Ensuing gas shortages and the diversion of gas needed for industrial usage to domestic end-users signaled that Beijing’s early winter ramp up of its plan of replacing dirtier-burning coal with cleaner natural gas for power generation and heating was overly ambitions.

Another reflection of the Middle Kingdom’s ravenous gas thirst became evident last week when the world’s largest energy user released its most recent LNG import figures. For January, China imported 5.18 million tonnes of the super-cooled fuel, a new record, compared to the previous record of 5.03 million tonnes set this past December, according to data from China’s General Administration of Customs. January’s LNG import levels spiked some 51.2 percent compared to the same period last year.

Increased LNG import levels also came as China secured supplies before Lunar New Year, which fell in January this year instead of February.

In another intriguing development of just how much China is changing gas and LNG markets, the country’s January import levels were equal to 63 percent of the volume discharged at terminals in Japan, the world’s largest buyer of LNG. Japan imported 8.26M tonnes of LNG during the month, a 0.5 percent year-on-year decline, according to a report in LNG World Shipping News.

The report added that several of China’s 17 LNG receiving terminals have been operating well above nameplate capacity since the winter chill set in towards the end of 2017. The average utilization rate for the countrywide complement of terminals last year was 66 percent.

ENN goes long

ENN Energy Holdings, China’s largest gas distribution company with a US$65.4 billion market cap, is also going long on LNG.

At a conference in Singapore on Thursday, ENN Energy Holdings vice president Ma Shenyuan said that it will have the initial phase of the country’s first privately owned LNG import terminal ready by the middle of this year. The 3 million tonnes per annum (mtpa) Zhoushan terminal in China’s eastern Zhejiang region is more than 90 percent complete. He added that ENN is also considering expanding the terminal by adding 15 mtpa in phases two and three.

Related: Trump’s Gas Tax Hike Could Make Californian Fuel Cheaper

This comes as China’s gas demand is set to rise so much that it will revolutionize gas markets, particularly LNG markets not only in Asia but globally, creating opportunities for LNG producers to lock in longer term off-take agreements (which in an increasingly over supplied market are becoming harder to come by) as well as mid-term and more importantly for market liquidity - spot deals.

In October, the U.S. Energy Information Administration (EIA) said that global natural gas consumption is expected to grow from 340 billion cubic feet per day (Bcf/d) in 2015 to 485 Bcf/d by 2040, primarily in countries in Asia and in the Middle East. China accounts for more than a quarter of all global natural gas consumption growth between 2015 and 2040, the EIA added.

In November, the Paris-based International Energy Agency (IEA) projected a similar trajectory. It said that China’s natural gas demand is estimated to increase to 400 bcm by 2040 from 210 Bcm in 2016 as the country shifts its emphasis to cleaner and more efficient sources of energy.

Enter robust US production

At the same time, U.S. shale gas production is projected to continue to grow as the country pivots from being a net energy importer to net energy exporter, another dynamic that is revolutionizing gas and LNG markets.

The U.S. will have as many as five LNG export projects in operation soon, increasing liquefaction capacity from 1.4 Bcf/d at the end of 2016 to 9.5 Bcf/d by the end of 2019. This intersection of insatiable Chinese gas demand and robust US shale gas production and corresponding LNG exports, will become one of the top energy geopolitical stories of the next decade – swinging leverage back in Washington’s favor over Beijing, both geopolitically and economically.

Related: Trump’s Gas Tax Hike Could Make Californian Fuel Cheaper

As China continues to secure LNG deals to meet the government’s mandate of gas making up at least 10 percent of the country’s energy mix needed for power generation by 2020, with more earmarks set for 2030, the country’s gas players will be forced to strike more deals with U.S.-LNG producers, both spot and long-term deals.

China’s increased gas usage and its intersection with U.S. LNG development will also offset massive trade imbalances between the two countries, the very dynamic that’s currently setting the two economic power houses on a trade war collision course.

Upping the ante even more, is a pro-energy administration in the White House that is pushing for an easier federal review and approval process for even more U.S.-based LNG project proposals. Soon, funds that so often left the U.S. for Chinese shores could be reversing, thanks to U.S. shale gas production and LNG exports.

By Tim Daiss for Oilprice.com

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