China receives limited spot LNG offers for August, September

Independent buyers in China said sellers have not been forthcoming with their offers in the past month, with many traders and portfolio suppliers turning their attention to the Middle East, India and Pakistan.

“We were keen to buy at least one cargo in July, but many sellers told us they are out of August cargoes and supply might be tight for September,” an independent Chinese buyer said.

Bids for August and September deliveries are at $8.20-8.40/MMBtu, according to the same buyer, but state-owned LNG buyers said they are only interested if the offer is lower than mid-$7.00s/MMBtu.

The different price expectations emerge on the back of the individual buyer’s position in the downstream market. Some buyers have a distribution network that permits them to pass down the LNG cost to end-users, while others must integrate LNG into an overall basket which includes pipeline gas and sell it at regulated downstream prices.

“If the price is any higher than $7.50/MMBtu, it cuts into our margins and becomes uncompetitive. It negates the purpose of buying LNG imports,” a private gas distributor said.

Terminal access has been a major issue for many private buyers in China and sellers want to avoid physical risk on the cargo. While there is buying interest from China, a source close to Malaysia’s PETRONAS said sellers are currently not interested in concluding a spot deal unless the buyer can show firm documentation of terminal access.

“Chances of concluding a deal is very slim, because these buyers still have the issue of being unable to secure delivery windows at PetroChina’s terminals,” the source said. “There are also more attractive markets at the moment.”

Domestic supply outweighs demand

On the other hand, many independent Chinese buyers are not actively scouring the market for spot cargoes, as they deem domestic supply more than sufficient in meeting their August and September requirements.

“We are looking, but we are not in a hurry to buy,” the private gas distributor said.

“The pipeline gas in China is close to oversupply, which makes domestic prices more attractive for us right now,” the source added.

China’s domestic pipeline gas is currently priced at $2.00-3.00/cbm, the source said. In comparison, the spot LNG price for the second half of August is at $8.20/MMBtu, according to ICIS EAX assessment on 21 July.

Separately, independent buyer Beijing Gas Group on 2 July signed a $110m deal with France-headquartered utility Engie to purchase three LNG cargoes for this winter, but it is still looking for spot volumes during the shoulder season.

The company foresees that its downstream markets would be to absorb any additional natural gas in August and September, a source close to Beijing Gas said.

“It also believes it would be able to obtain access to the Rudong and Caofeidian terminals if it can secure a cargo,” the source said.

Both Rudong and Caofeidian terminals are owned and operated by state-owned major PetroChina that has a stake in Beijing Gas. ICIS was unable to reach PetroChina for comment. xieli.lee@icis.com