With Japan’s LNG demand in long-term structural decline, China will this year become the world’s largest LNG market.
ccording to Wood Mackenzie, Asian LNG demand firmly returned to growth in the first five months of 2021, with China being the single biggest contributor.
We now expect 11 Mt of demand growth from the country this year, meaning China will account for over half of the 18 Mt of the increase in global LNG demand forecast for 2021 and a little over one-third of global LNG growth in 2022. With its LNG demand bolstered by clear policy support and strong gas market fundamentals, China’s top spot looks assured for years to come
Commenting on what is driving this continued strong LNG demand outlook, Xueke Wang from Wood Mackenzie’s Asia Pacific gas research team, believes that LNG demand is supported by strong growth within key sectors, which are accelerating China’s long-anticipated climb to the top of the global LNG import table. S
Furthermore, strong electricity demand has been a key driver for increased LNG imports in southern China in particular, as gas provides the critical peak-shaving supply into that market.
Now, in order to keep up with demand, power plants have bought more gas and are running gas-fired units for longer. However, pipeline gas supply remains constrained, and for power generators under political pressure to ensure electricity supply, this has encouraged more LNG imports, even at higher cost.
In additin, spot LNG has been the most competitive gas import option into China for the past two years. But increasing prices have now brought this competitive advantage to an end, and LNG may well become a cost-disadvantaged supply option versus pipeline imports over the next two years.
Currently, Australia is China’s largest LNG trading partner, despite a fall in volume from April that caused a slight decrease in Australia’s market share to 43% from the previous 45% of total LNG imports.
With power supply tightness expected to continue through June and high coal prices resulting in coal-fired output slipping, China will try to increase gas supplies from all sources. As such, we can expect Chinese buyers to remain busy in the spot market and China’s NOCs and second-tier players continue to import Australian LNG, despite unconfirmed media reports that smaller buyers had been advised not to purchase spot from Australia
said Wood Mackenzie.
Nevertheless, any unforeseen economic slowdown or a resurgence in Covid restrictions could reverse the positive outlook. But another factor that needs to be considered is the potential for an increase in supply from domestic production and more rapid growth in Russian pipeline imports.
That said, with Russian piped gas currently the lowest-cost import option at the Chinese border we expect continued strong growth in Russian gas as cost-competitive supply increases and domestic pipelines expand. But this still won’t be enough to meet anticipated demand, and China needs significant further imported LNG to sustain domestic demand growth.