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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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China Determined To Avoid Another Natural Gas Crisis

Last winter, China gobbled up spot cargoes to meet soaring natural gas demand in freezing temperatures, upending the liquefied natural gas (LNG) market, which was thought to be on the verge of oversupply just a year ago.

The Chinese coal-to-gas switch policy for millions of households backfired with severe gas shortages last winter, lifting domestic Chinese LNG prices to more than US$20/mmBtu and driving Asian spot LNG prices up.

This winter, China’s authorities are determined to avoid another natural gas supply crunch. And they are handling supplies much better than past winter—domestic natural gas production is rising, state energy giants are boosting gas pipeline infrastructure and connectivity, and the coal-to-gas switch is more measured and moderate, taking into account expectations of demand.

Chinese natural gas imports are soaring, but procurement for this winter’s demand started early to avoid a last-minute rush and a repeat of the 2017-2018 winter. China’s natural gas storage tanks are close to full. The element of surprise that pushed LNG prices soaring last winter has been eliminated.

This year, weather is also in favor of Chinese authorities. Milder weather a month into the heating season and forecasts for a milder-than-usual winter have led to expectations that China won’t see another supply crunch between December and February.

As a result, spot LNG prices in Asia fell last week to their lowest level in six months, with spot prices for January delivery down US$1 in one week to US$8.80/mmBtu—the lowest price since May this year and down from last year for the first time in 2018. That’s because demand is softer, storage is nearly full, and buyers from China to South Korea to Japan had moved in as early as in September and October to procure LNG cargoes to avoid last year’s rush and surging market prices. A drop in spot LNG prices in Asia is not typical for the winter season in the northern hemisphere. Related: Citi: Oil Prices Are Going Nowhere Next Year

Prices and natural gas demand soared last winter as China was scrambling to procure supplies in a colder-than-usual season. The authorities had to backtrack on the coal ban in some areas to ease the crunch.

This year, milder weather has surely helped, but China started to carefully plan supply, as soon as last winter’s season ended.

Chinese importers—under political pressure—were buying LNG all throughout this year to spread out the costs and to build up supplies for the winter well in advance, Chinese end-users told S&P Global Platts.  

China’s domestic natural gas production increased by 7.5 percent on the year in October 2018 and by 6.3 percent between January and October, compared to the same period last year, according to the National Bureau of Statistics of China.

State major PetroChina said last month that the Central Asia-China gas pipeline would operate at 100 percent capacity this winter season and would supply the highest ever gas volume. Another major state-owned company, Sinopec will raise its natural gas supply this winter by 17.7 percent compared to last winter, with supply in seven provinces and cities up by 29.1 percent, the company said days before the winter heating season in China began.

Aaron Xiao, an energy analyst with Jefferies Hong Kong, told Bloomberg, commenting on the Chinese preparedness: 

“We estimate 2018 gas supply, which is in the range of 282 to 285 billion cubic meters, will fully cover the increased gas demands in China, barring extreme weather conditions.”

Unlike last year’s chaos over demand, price surges, and supply shortages, China now fares much better in planning and handling this winter’s natural gas supply. Analysts expect Chinese supply would be enough to meet rising demand, unless a severe cold snap sweeps through north Asia—a possibility that hasn’t shown yet on weather maps.  

By Tsvetana Paraskova for Oilprice.com

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