China Jockeys for Top LNG Import Slot
China’s total natural gas imports, both pipeline and liquefied natural gas (LNG), last year reached some 101.66 million tonnes, a 5.3 percent year-on-year increase, according to customs data. In December, its total gas imports soared to 11.23 million tonnes, a new record, with LNG imports representing over 9 million tonnes for the month – also a record high. It was the second month in a row that China’s LNG imports bypassed current LNG global leader Japan.
China’s increased natural gas demand came as the country largely shrugged off economic headwinds from the COVID-19 pandemic by April due to early lockdowns around Wuhan, the epicenter of the virus. Last year, China was the only G20 member that posted positive economic growth at just over 2 percent and is forecasted to grow 7.9 percent this year, according to a recent World Bank report.
China is also repositioning itself as an LNG powerhouse that could soon rival Japan by not only increasing procurement of the fuel, both spot and long-term off-take agreements, but by a massive LNG and gas infrastructure build-out.
China’s LNG build-out
By the end of 2020, China had 22 LNG import terminals with a total annual receiving capacity of 81 million cubic meters (mcm). The country also plans to set up two new terminals – Pinghu LNG and Wenzhou LNG this year, and launch as many as five terminal expansions, adding 17 mcm of receiving capacity, according to a China Daily report.
China also pushed through with a long-fought liberalization of gas markets by approving group LNG purchases, which allows smaller players, particularly city gas distributors, more procurement options, in addition to incentivizing both private and smaller state-run companies to set up their own terminals.
A report by Beijing-based SIA Energy said that these smaller terminals could make up as much as 40 percent of China’s LNG capacity by 2030, compared to just 15 percent currently. China is projected to bypass Japan as the world’s top LNG importer by as early as 2022 or 2023.
Japan’s LNG stagnation
China’s LNG build-out comes as Japan, with the most developed LNG infrastructure in the world, sees contraction in the sector. As of mid-2020, Japan operated 37 LNG import terminals with a total send out capacity of around 10 trillion cubic feet per year, according to the U.S. Energy Information Administration (EIA).
Japan’s regasification capacity, however, exceeded its gas demand at an average terminal utilization rate of 36 percent in 2019. That reduction comes from slower economic growth but also an ongoing population decline that is now being exacerbated by the COVID-19 pandemic.
Japan’s LNG demand growth is also projected to flatten going forward due to increased nuclear power utilization nearly ten years removed from the Fukushima nuclear disaster, and more renewals, both solar and wind, and now green hydrogen.
South Korea will remain the world’s third-largest LNG importer, followed by India and Taiwan, respectively. Other new importers that will help the Asia-Pacific region maintain its LNG import lead include Pakistan, Bangladesh, Sri Lanka, Thailand and, soon, the Philippines and Vietnam. The region represents around two-thirds of global demand for the fuel,
As such, the world’s top three LNG producers – Australia, Qatar and the U.S., in addition to an ambitious Russia and others – will seek to both solidify and capture more market share in the region. The target region includes not only China but also India, which is also undergoing its own large-scale gas and LNG infrastructure build-out.
The U.S. for its part could face more challenges striking new deals with Chinese firms due to the nearly three-year trade war between Washington and Beijing. However, as part of the phase one trade deal reached last year, China’s LNG imports from the U.S. spiked 47.7 percent to 419,054 metric tons in November, compared with zero over the same period a year earlier, according to Platts Analytics. Those numbers could continue to increase if the Biden administration reaches any sort of a trade war truce with Beijing.
More deals between Chinese firms and U.S. LNG producers, particularly project proposals that still need to reach their all-important final investment decisions, could see the U.S. vie with both Australia and Qatar for the top two global LNG exporter slots.
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