Chinese demand is rising LNG prices

China shift from coal to gas is rising the world demand for LNG and pushing up spot prices.

Spot prices for July LNG-AS delivery in Asia were at $9.60 per million British thermal units (Btu) this week, gaining 40 cents from the previous week and are at the highest for this time of the year since 2014.

Supply is expected to be limited in August amid maintenance at Sakhalin Energy’s offshore gas platforms in Russia and at the Angola LNG project.

https://uk.reuters.com/article/global-lng/global-lng-lng-prices-climb-to-highest-since-february-on-limited-supply-idUKL3N1T3340

 

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(edited)

You have to wonder about the shipping-cost contribution to that price rise.  There is limited current LNG ship capacity out there, and because those ships are complex,  they take longer to build.  So now there is this spurt of buying activity, but what is going to carry the product to the Buyer?  There are quite a few new LNG tankers on the order books, but those will not hit the water until 2019 and 2020. 

A sharp rise in LNG cargo rates, which is what I suspect is happening here, will drive up delivered pricing. 

The other thing to remember is that adding "sea miles" to cargo shipments effectively reduces the ship supply.  The reason is that each ship can only steam so many miles per day  (typically, around 14 knots, so figure 14x24  = 336 nautical miles/day). If your supplier is in Louisiana and your customer is in Shanghai,  you need more ships to haul a specific volume of cargo in a fixed time frame than if your supplier is in Qatar and your buyer is in Istanbul.  As China becomes a larger player in the marketplace and those shipping distances for LNG cargoes get longer, effectively the fleet capacity is shrunk.  All this tends to drive up delivered prices. 

Edited by Jan van Eck
added "in a fixed time frame"
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(edited)

Price increase also linked to the rising oil price. As this chart shows LNG price is evolving in close relation with the oil price.

But the Henry Hub Spot follows another pattern.

image.png.d35afaa7a9818a562768fb1dc3c54031.png

Charts from an interesting article on LNG business models :

https://uhenergy.wordpress.com/2018/05/14/lng-projects-have-stalled-a-new-business-model-could-help/

image.png

 

Edited by Guillaume Albasini

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Guillaume Albasini - I don't mean to always rain on your energy parade but this point "China's shift from coal to gas" has to be qualified. China's major source of energy is coal and will be for a very long time  https://www.eia.gov/beta/international/analysis.php?iso=CHN

There is a shift to gas - the IEA says the country aims to get to 10 per cent by 2020 - and the authorities desperately want more consumers in the major cities to use gas rather than coal (consumer use of coal for heating is a major source of the horrendous pollution in cities), but it remains marginal and is likely to be so for some time. Same for renewables with the exception of hydro. The Chinese economy just isn't set up for other energy sources. That said, any increase in demand in China may well shift global markets.

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Mark, I agree with you that coal is still the main source of energy in China but I don't agree when you say it will still be the main source of energy for a very long time.

As you said, the level of air pollution in many chinese cities is horrendous and is causing more than 1 million air pollution-related deaths each year (WHO estimation). It's a public health problem, an economic problem and also a social and political problem.

https://chinapower.csis.org/air-quality/

For too long chinese leaders have prioritize economic growth over environmental and social welfare. Until the level of pollution started to become a cause of social unrest.

But things are changing.  Now fighting air pollution is a high priority on the agenda of the chinese regime and this is one of the main reasons why they are heavily promoting renewable energy, EV's and the shift from coal to gas in heating and power generation. Since early 2010s  Beijing began taking serious steps to reduce coal consumption, introducing the Airborne Pollution Prevention and Control Action Plan in 2013 not only recognizing coal as a driver for air pollution, but also placing caps on coal consumption.

The shift from coal to gas is a clear policy even if it's not easy to implement (see last winter heating problems in some regions where the shift to gas heating was forced but gas supply could not follow the increased demand). In February 2017 a directive cancelled 103 planned or half-constructed coal-fired power plants

After several years of decline coal consumption rose in volume last year due to a very cold winter but it fell as a percentage of total energy by 1.6 points to 60.4 %.  It's still a high percentage but it's in steep decline from 68% in 2012, to 65% in 2015 and 60% in 2017. If this trend go on for some years coal could loose its dominant role faster than expected.

However the data on chinese coal consumption is rather foggy...

https://www.rfa.org/english/commentaries/energy_watch/chinas-coal-consumption-clouded-in-mystery-05212018100931.html

To reduce it's coal consumption, China is increasing renewable energy production and LNG imports. But next winter they will be more cautious than last winter to prevent the shortages.

https://www.reuters.com/article/us-singapore-lng-conference-china/china-unlikely-to-repeat-lng-import-surge-this-winter-unipec-idUSKBN1HV0EF

 

 

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(edited)

Reuters has the best article I have seen on the Chinese natural gas production and consumption dilemma. See https://www.reuters.com/article/us-china-pollution-gas-production/chinas-soaring-natural-gas-output-unable-to-meet-demand-set-loose-in-pollution-fight-idUSKBN1FP006 

I am wondering how much preference they will give to Russia and its new pipelines and LNG. 

I do believe that China has the sense to become the world leader in USING natural gas in transportation and all engines. Especially since they may be able to eventually produce all their own natural gas. 

See https://www.made-in-china.com/products-search/find-china-products/0b0nolimit/Natural_Gas_Engines-2.html

See https://www.reuters.com/article/us-china-pollution-gas-trucks/gas-trucks-boom-in-china-as-government-curbs-diesel-in-war-on-smog-idUSKBN1CC0T0 

Edited by ronwagn
added reference
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