China doesn't look likely to be a major player in the spot LNG markets this winter, according to John Harris, Director of Global Gas at IHS CERA.
China imported 11.25 million cubic meters of LNG in the first six months of 2011, 26.7% more than it did during the same period in 2010, due to increasing production at existing facilities, and the opening of its new LNG regasification terminal at Rudong this year.
Even though Chinese demand for LNG appears robust, with China importing a record 1.43 million cu m of LNG in June, "the thing to remember for China is that its demand for LNG is largely met through long term contracts," said Harris.
"In terms of consumption, Japan is importing significantly more LNG, and Japan and Korea have more strong seasonal demand profiles related to the winter period" Harris said, adding that "China doesn't have much conventional gas storage, so to some extent, incremental LNG demand will be relatively small."
China National Offshore Oil Corporation, which holds stakes in three of the four LNG terminals in China, listed power and industrial companies in the southeast of China as major customers in its 2010 annual report.
Of particular note, 80% of the imports into CNOOC's Fujian LNG terminal are channeled to three gas-fired power plants under the Fujian LNG project, according to the Fujian Entry-Exit Inspection & Quarantine Bureau.
Asian spot LNG this winter looks to be dominated by Japan and Korea, as Japan continues to grapple with decreased nuclear power output expansions, forcing them to use more fossil fuels like LNG, and South Korea competes for additional LNG to fuel its economic recovery.
Chinese spot LNG demand this winter, like Japan and Korea, will depend on heating requirements. "For China to buy spot LNG cargoes, it will depend very much on weather patterns. They could buy any time from the beginning of October onward, but the volumes will be hard to predict since there is very little storage capacity. Demand will depend heavily on the weather," said Harris.
If China has a cold winter, some customers may have supply disruptions, as China prioritizes who will receive the gas. "Residential [gas] supply would be expected to have a higher priority than industrial companies. Industrial companies are more exposed to shortfalls and are the ones which would likely see interruptions in gas supply [if there is a cold winter]," Harris said.
