China’s LNG demand shoots up at expense of pipeline imports

SINGAPORE (ICIS)–China’s pipeline gas imports look set to fall for the rest of this year, as domestic end-users switch to cheaper supplies from LNG trucks.

State-owned major China National Petroleum Corp (CNPC), the country’s sole pipeline gas importer, is cutting pipe gas imports because of aggressive pricing competition from LNG truck sellers who hold high inventories, said Chinese sources.

LNG truck prices have been falling, as state-owned majors empty their LNG terminal tanks, so that they can receive fresh cargoes, said a Chinese source.

This has led to fierce pricing competition in the Chinese gas market.

Chinese pipeline gas imports in May likely fell under 2m tonnes, the lowest since November 2016, according to LNG Edge and preliminary customs data. This would be the third consecutive month of declines.

Supplies from the LNG truck sector have displaced pipeline gas supplies more since March, following a big decrease in LNG spot prices, said sources from three Chinese state-owned majors and two independent buyers.

Chinese sources also noted that the prices for LNG truck supply from import terminals have fallen below domestic production, prompting some smaller domestic LNG plants to cut production.

FIRMER LNG IMPORTS

China’s overall gas imports increased by 3.7% year on year in May, with LNG imports rising by 21% to 5.9m tonnes, according to data from customs and LNG Edge.

In the first five months of 2020, China has imported 1.9% more natural gas than in 2019 , with a total of 40.12m tonnes. But the increase is now firmly focused on LNG.

June LNG imports are likely to continue to rise, driven by competitively-priced spot cargoes. But seasonal demand decreases in the domestic market are likely to further squeeze pipeline gas imports.

LNG trucks sales remain high from LNG terminals. LNG sales via truck from the Tianjin LNG terminal in north China were notably strong in May.

Customs data showed that Tianjin imported 3.92m tonnes of LNG in the first four months of 2020, up 26% year on year.

CNPC REROUTES TO SINOPEC

CNPC is the country’s biggest pipeline gas supplier, produces around 70-80% of domestic gas.

CNPC cannot easily cut domestic gas production, as they have a mandate to keep their gas field workers employed, said a source from a state-owned major.

Cutting pipeline gas imports is the easiest choice for CNPC to manage its high gas inventories.

CNPC is diverting excess pipeline gas supply and contractual LNG shipments to state-owned major Sinopec on a bilateral basis, according to another source with knowledge of the matter.

This re-routing is expected to continue through to the end of the year.