The upcoming winter in China will define how the global LNG market evolves in the coming months, major industry players said Wednesday.
Chinese demand over Winter 2018/19 will likely be the biggest, single swing factor in the global LNG market -- a cold winter would see Chinese LNG imports grow further at the expense of other importing regions such as Europe, while a mild winter would see more cargoes of LNG available globally.
"The amount of Chinese LNG demand volatility is an unknown -- it is completely unprecedented," Piero Ercoli, senior vice president at Italy's Eni, said at the European Autumn Gas Conference in Berlin.
"It all comes back to the weather," Ercoli said, given that much of China's growing gas demand is in the heating sector.
The development of Chinese demand -- either to the up- or downside -- would therefore have a "knock-on effect" on Europe's ability to attract LNG this winter, he said.
Chinese LNG demand surprised many over the past few years, with imports up by around 50% to 38 million mt in 2017 and purchases set to hit 50 million mt in 2018, according to Ercoli.
Last year, global LNG imports totaled 290 million mt, according to industry group GIIGNL, putting the Chinese growth into perspective.
But, Ercoli said, it is not the volumes that are important, but the volatility of the demand. "China is the player in the market to watch," Ercoli said.
LNG PRICES 'LESS TOPPY'
Andrew Walker, vice president for strategy at US LNG pioneer Cheniere Energy, agreed that China was key to where the LNG market moves next.
"The market is balanced, ready to see where the weather [in China] goes," Walker said.
Walker said the recent increase in LNG deliveries to Europe was a test of the "ebb and flow" of global LNG in the shoulder months -- traditionally the months in the spring and autumn outside of the key winter and summer delivery periods.
Europe has seen its highest rate of LNG regasification in recent weeks since the Fukushima disaster in 2011 that immediately diverted significant numbers of LNG cargoes to Japan.
High European gas prices coupled with strong shipping rates and a weaker Asian JKM spot price have attracted LNG to European shores in recent weeks, helping to dampen prices.
The pattern of Chinese demand has also shifted in 2018 compared with last year, when China imported the bulk of its LNG in the winter period, in turn creating internal bottlenecks with the gas unable to reach its market inside China.
Walker said China had "learned its lesson from last year" and had imported more LNG over the summer, which had had a bullish impact on LNG prices globally.
Winter LNG prices, as a result, are "less toppy," he said.
Walker also said that Europe would continue to play its role as the "balancing market" for global LNG, and that if the price was low enough there would be European buyers for the LNG.
Denis Korolev, formerly of Russian LNG producer Novatek and now partner at technology firm OctoLNG, countered that many new LNG importing countries were absorbing excess LNG.
"Europe has the potential to lose its title of LNG market of last resort," Korolev said.
LONG-TERM CONTRACTS
Walker also said the long-term LNG contract model was still valid despite claims that it was "dead" as buyers favored shorter-term, more flexible LNG buying arrangements.
He said Cheniere had 16 long-term buyers for its US LNG, including seven from European companies.
"Long-term contracts are not dead because we are signing them," he said, adding that Cheniere continued to see interest in long-term import deals with Asian buyers.
He also pointed to recent deals with trading houses -- including Switzerland-based Vitol -- for long-term LNG offtake agreements.
These traders, Walker said, had big enough LNG portfolios now to see the benefit of having structured volumes.
The industry is evolving, he said, with developers able to seek financing using a portfolio of long-term, medium-term and short-term contracts.
