Chinese and Korean LNG imports for the year to date are running neck and neck, with 29.1M tonnes (mt) of the cryogenic liquid being discharged at China’s terminals during the first 10 months of 2017, and 30.1 mt at Korea’s.
However, the growth in demand for LNG in China is currently so great that the country is set to overtake Korea to become the world’s second-largest buyer of the product by the end of 2017. Chinese imports for the first 10 months of the year were 48% ahead of the volume delivered over the same period in 2016, whereas Korean imports are up only 11%.
The situation today reinforces the extent to which Korea’s position as the second-largest LNG import nation has been rapidly whittled away in recent years. Korea’s LNG purchases of 33.4 mt in 2016 were only 2.3% above the 2015 volume, while China’s 26.1 mt of imports last year were 32.6% higher than the 2015 figure.
In July this year, LNG World Shipping flagged the possibility of this imminent change in the LNG importers league table when we reported that China’s monthly LNG imports exceeded those of Korea for the first time in May 2017. The 2.91 mt discharged at Chinese terminals that month was 104% more than the May 2016 volume, while Korea’s 2.49 mt represented a 12.4% year-on-year jump.
Korea also elected President Moon Jae-in in May, a politician who immediately launched an energy policy that favoured, for environmental and safety reasons, LNG and renewables over coal and nuclear. His victory signalled a resurgent interest in what had previously been a mature market for natural gas and prompted the 11% boost in Korean LNG imports in the year to date.
China leads growth table
However, Korea’s current LNG import growth rate pales in comparison to that of its near neighbour. China has been the fastest-growing major market for LNG over the past two years and its strengthening appetite for the clean-burning fuel shows no signs of abating.
To combat air pollution, the government has introduced policy directives which support coal-to-gas switching in both the industrial and residential sectors. Residential demand, in particular, is being buoyed by the large-scale replacement of coal-fired heating with gas-fired boilers in domestic households.
The impact is currently being felt most strongly in the northern provinces of Henan, Liaoning, Shandong and Hebei, along with the latter’s neighbouring municipalities of Beijing and Tianjin.
Winter has set in early this year in northern China, to such an extent that the Dalian, Tianjin, Qingdao, Rudong, Zhejiang and Tangshan LNG import terminals are running at near to, and occasionally well above, nameplate capacity. In contrast, China’s overall total of 16 in-service LNG terminals are currently operating at an aggregate utilisation rate of close to 55%.
Unconfirmed data indicates that Chinese LNG imports reached 4 mt in November 2017, a new monthly record which relegates the previous best of 3.7 mt in December 2016 to history. Chinese purchases for the entire 2017/18 winter season could top 20 mt.
Almost 30% of China’s November import total was loaded at the Australian port of Gladstone. Australia Pacific LNG (APLNG), one of three export terminals on Gladstone’s Curtis Island and a project with which Sinopec has a long-term purchase agreement, was the primary provider of this tranche.
Chinese terminal network
China began importing LNG in 2006, and its 16 LNG receiving terminals now in operation have a combined throughput capability of 53M tonnes per annum (mta). Three additional Chinese import terminals, totalling 10 mta in capacity, are under construction and set to commence operations within the next 12 months.
Several further facilities are planned, a number of which have already successfully completed the statutory permitting process. The government is under pressure to approve those facilities planned for the northern part of the country.
The newest terminal is Guanghui Energy’s small-scale, 0.6 mta Qidong facility, commissioned in June 2017 with the discharge of a 60,000-tonne cargo by Grace Acacia. Like Jovo’s Dongguan facility, another of China’s three small-scale import terminals, Qidong is a privately-owned venture.
Jovo and Ganghui, both gas distribution companies/domestic gas suppliers, are enabling third party access (TPA) to China’s LNG import terminal network for the first time through their new installations. Ganghui’s Qidong terminal project is a joint venture with Shell and the plan is to increase throughput capacity to 3 mta by 2019.
One of the three terminals due for completion by mid-2018 is being built by ENN, China’s largest private gas distribution company. TPA is also on the agenda for this terminal, a 3 mta facility taking shape at Zhoushan in Zhejiang province.
Chevron has signed up to provide 0.5 mta of LNG to Zhoushan for 10 years from its new Gorgon project in Australia while Total will supply ENN with the same volume over the same period from its global portfolio.
China boosts LNG market
China is well on the way to achieving its goal of having natural gas meet 10% of its energy needs by 2020, up from 5.9% in 2015.
With domestic gas production on the decline, the country has been turning more and more to imports of LNG and pipeline gas to meet demand. Until recently, pipeline gas and LNG have been making equal contributions to the import mix but LNG is now in the ascendancy.
Chinese buyers, in particular CNOOC and PetroChina, are making increasing use of the spot market to augment the country’s traditional LNG purchases under long-term contracts and meet the rising demand for gas. This, in turn, has boosted market liquidity in the region and helped support rising Asian LNG prices.
In late November 2017, Asian spot LNG prices had topped US$10/million Btu, a three-year high and a leap of almost 60% since the start of September. There is no danger of the Asian market over-tightening, however, as a series of Australian and US liquefaction train commissionings continue to introduce substantial new volumes of LNG to the global supply pool.
In its July 2017 report on Chinese and Korean imports, LNG World Shipping predicted that, due to the introduction of President Moon’s pro-LNG policy and the difficulties associated with maintaining a 40%-plus growth rate in Chinese import volumes, Korea would remain the world’s second-largest LNG purchaser in 2017. We said that the switch in league table positions would not occur until 2018, when Chinese imports would top those of its neighbour by a clear margin.
However, events of the past six months have proved that forecast to be wide of the mark. Chinese imports have remained bullish, and notably so. LNG World Shipping now expects Chinese LNG imports for 2017 to be ahead of those of Korea, albeit by a small margin.
Thereafter, the gap will widen. One industry observer stated that as a result of President Moon’s entry into office Korean LNG purchases could well reach the 45 mta level by 2030. Meanwhile, Shell, in its LNG Outlook 2017 published in March, surveyed a range of forecasts by leading industry watchers and predicted that China’s annual LNG imports will be topping 80 mt by 2030.