Viewpoint: China poised to remain LNG demand centre

China's imports of LNG may gain momentum with the signing of new sales and purchase agreements (SPAs) due to start in 2023, alongside new infrastructure coming on line the same year.

This is despite a tumultuous year for the country as it battled repeated Covid-19 resurgences, which capped demand for LNG.

But some Covid-19 controls in the country are gradually being relaxed, raising hopes that downstream demand in China could soon rebound, although the full extent of this potential rebound is unclear, market participants said.

China is expected to lose its crown to Japan as the top LNG importer in 2022. Japan's LNG imports totalled 49.2mn t between January-August 2022. In comparison, China imported 40.9mn t and South Korea imported 29.9mn t over the same period. China, previously the top importer, imported a total of 79.3mn t in 2021 when it overtook Japan for the very first time, by 5mn t.

High and volatile prices have dampened Chinese demand for spot LNG, with the country turning to lower-priced pipeline gas imports and domestically produced gas instead, as well as alternatives such as coal, LPG and other fuels. Continued Covid-19-related lockdowns in China have also kept gas demand suppressed because of a slump in industrial demand.

The number of tenders that China issued in 2022 has also dwindled. The country has issued less than five tenders so far in 2022, far fewer than India, which has issued an average of about four tenders each month up to November 2022. This is significant as India has similarly been hit with weaker gas demand as a result of high spot prices.

SPAs remain in focus for Chinese firms

China has already penned SPAs with suppliers from Qatar and the US before the end of 2022, while their Japanese and South Korean counterparts have continued to mull over their options.

State-controlled Sinopec and Qatari state-owned energy company QatarEnergy have signed a record-long 27-year supply agreement for 4mn t/yr of LNG, starting in 2026.

State-owned utility Foran Energy has signed a 16-year LNG purchase agreement with Sinochem International (Singapore) for up to 228.75 trillion Btu from 1 January 2023 to 31 December 2039.

Chinese private-sector firm Guangzhou Development Natural Gas Trading has signed a SPA to buy 400,000 t/yr of LNG for delivery across 2023-32 from China's state-owned Sinochem International Oil.

China has currently already eased some of its most stringent Covid-19 restrictions, and its continued investment in and expansion of its LNG terminals and other related infrastructure may be a clearer indicator of the country's long-term plans for gas to become a more significant part of its power mix.

Earlier projections by China's National Environment Agency on 19 August estimated China's gas consumption in 2022 to be 375bn-380bn m³. This is still higher compared to China's gas consumption in 2021 at 372.6bn m³, according to China's main economic planning agency the NDRC.

The domestic trucked LNG market in China has once again provided a reference point for what may be a sustainable clearing level for LNG spot cargoes to Chinese downstream consumers in the not-so-distant future. The Argus China LNG delivered trucked prices to Hebei, Jiangsu and Guangdong were last assessed at 7,850 yuan/t ($21.605/mn Btu), Yn8,250/t ($22.705/mn Btu) and Yn7,825/t ($21.54/mn Btu) on 21 December, respectively.

In comparison, the front half-month of the ANEA, the Argus assessment for spot LNG deliveries to northeast Asia, was last assessed at $29.63/mn Btu on the same day.