Capacity expansion delays to cap China’s LNG imports

Source : https://www.argusmedia.com/en/news/2147507-capacity-expansion-delays-to-cap-chinas-lng-imports

 

China could import large volumes of LNG this winter, but its ability to absorb additional supply will be capped by the limited rise in regasification capacity in 2020 compared with recent years.

At least eight Chinese LNG projects, including new terminals and expansions, were scheduled to start up this year, but none had done so by the beginning of October. Six have been delayed to next year, leaving just two terminal expansions that could be completed this year.

State-controlled PetroChina's Tangshan LNG phase 3 and state-owned firms' Shenergy Group and CNOOC's Shanghai LNG phase 2 projects could add 6.5mn t/yr of LNG receiving capacity to China's existing 74.55mn t/yr (see import capacity chart). But the projects may have been delayed by the Covid-19 outbreak, which caused suspensions at several construction projects in China early this year.

Four new LNG terminals that were initially scheduled to be completed this year have been delayed to 2021, including the Dushan and Damaiyu terminals in Zhejiang province, the Jiangin facility in Jiangsu and the Chaozhou project in Guangdong. Expansions at Guanghui Energy's Qidong and state-controlled Sinopec's Qingdao terminals have also been pushed back. The delayed projects would have added a combined 10.8mn t/yr of LNG receiving capacity (see table).

China added 12.75mn t/yr and 5.5mn t/yr of import capacity in 2017 and 2018, respectively.

Assuming no additions are made in the coming months, the country could import up to 19.4mn t of LNG in the fourth quarter and 18.9mn t in the first quarter of next year. This would still leave fourth-quarter volumes in line with previous expectations and overall LNG deliveries higher this winter than a year earlier. China's LNG imports have surpassed nameplate import capacity during peak demand periods over the past three winters (see LNG import capacity utilisation chart).

Imports stood at 32.3mn t in October 2019-March 2020, according to the country's customs data, with terminal utilisation rates averaging 88pc. And utilisation held strong this summer, averaging 87pc in April-August, despite typically lower demand in the summer than the winter. It was also up from 80pc over the same period last year, despite the coronavirus outbreak weighing on gas demand.

Low LNG prices likely spurred some opportunistic buying this summer, while falls in oil prices earlier this year incentivised Chinese buyers to defer oil-linked pipeline deliveries until later in 2020 and absorb spot LNG volumes instead. Strong LNG imports over the first three quarters of this year may have significantly bolstered China's LNG stocks and underground storage sites ahead of winter, which could make up for some of the delayed import capacity additions.

Coal-to-gas switch proposal may boost gas demand

A proposal to replace coal with cleaner energy sources, including natural gas, in the heating systems of 7.09 million households in China's northern provinces by the end of October could boost gas demand this winter and test the country's regasification capacity.

Some 4.8mn households switched away from coal in 2018 under China's clean energy policy, with 3.3mn choosing gas heating, representing an additional 4.53bn m³ of gas demand over the year, according to research by the IEA. A similar share of households switching to gas this winter could led to around 6.69bn m³ of additional gas demand.

The additional demand may need to be covered by pipeline gas supplies, which are expected to rebound in the coming months. Extra imports from Russia's Power of Siberia pipeline — which started exporting gas to China in December and was expected to supply up to 5bn m³ this year — could cover some requirements, but not all of the extra demand.

That said, the fuel switch has been proposed in a draft action plan and China's environment ministry has specified that the volume of fuel switching will depend on natural gas availability. The government set aggressive coal-to-gas switch targets in winter 2017-18, triggering severe gas shortages, exposing a lack of gas supply infrastructure, forcing shutdowns at factories that did not have gas supply and pushing LNG prices to record highs. Beijing eased back on the targets in 2018-19.


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