China plans to increase imports of pipeline gas and LNG from 14 billion cubic meters in 2011 to 90 billion cu m by 2015, on the back of the country's rapidly growing domestic gas market, analysts from Bernstein Research said in a report issued Tuesday.
In 2015, LNG imports are estimated to be at 40 billion cu m, consistent with the 50 billion cu m of regasification capacity addition that has been approved and is currently under construction.
PetroChina and Chinese National Offshore Oil Corporation are likely to be the main LNG suppliers as both companies will be operating four and five regasification terminals, respectively, by 2015. In the same year, Sinopec will also have two operational LNG terminals.
PetroChina will import 16 billion cu m, CNOOC 20 billion cu m and Sinopec will ship in 4 billion cu m of LNG in 2015.
The analysts added that PetroChina would be doubling production to 120 billion cm by 2015, accounting for 70% of domestic gas supply, enabling the company to keep natural gas as "the central plank of PetroChina's growth strategy."
PetroChina is expected to further import 50 billion cu m of piped natural gas from Turkmenistan and Myanmar in 2015, giving it a combined gas supply of 186 billion cu m to the Chinese market by 2015, maintaining its market share of the total gas market in China at 70%.
Neil Beveridge from Bernstein said that LNG volumes stated in the article referred to regasified LNG volumes.
UNCONVENTIONAL GAS DEVELOPMENTS SLOWLY GAINING PACE
PetroChina aims to tap into unconventional gas development as part of its gas growth plans, which include increasing coalbed methane production from about 1 billion cu m in 2010, to 4 billion cu m in 2015, accounting for 50% of the Chinese CBM production, according to the Bernstein report.
PetroChina will also be working on its first shale gas production, targeting output of 1 billion cu m by 2015.
Despite the ramped-up operations, analysts said that total unconventional gas production will make up less than 15% of China's total gas production.
The slow development is due to the new concept of shale gas production and the lack of mature technology and exploration techniques. The pace of conventional and unconventional gas development is also capped by limited capital.
TARGET GROWTH PLANS HAMPERED BY UNCERTAINTY IN GAS PRICE REFORMS
Aggressive growth targets in the gas market could be restricted as gas prices are still being regulated by the Chinese government and companies' earnings could be crunched in face of higher import gas prices.
The report referred to the Second West-to-East natural gas pipeline, which started up in July for transporting imported natural gas from Turkmenistan to South China's Pearl River Delta.
Turkmen gas pipeline imports will be priced at Yuan 2/cu m ($0.31/cu m) and with an estimated transportation cost of Yuan 1/cu m, the breakeven price at Shanghai and Guangdong was calculated to be Yuan 3/cu m.
However, with the current Shanghai City gas price at around Yuan 2/cu m, PetroChina will stand to lose Yuan 1/cu m on gas sales through the West-East pipeline assuming that prices remain unchanged, impacting profitability of operations through pipeline imports.
"Assuming that this year, PetroChina is going to be exposed to Yuan 15 billion of losses, we would expect to see gas prices increase by a minimum of 10% to offset losses, with further increases in 2012," said analysts.
The last upward revision made to domestic gas prices was last year, up 25% to $4.50/Mcf in an effort to reduce losses encountered by companies.
HIGHER JKM RE-EMPHASIZES UPTREND IN GAS IMPORT PRICES
Platts' LNG Japan Korea Marker for April and May in 2011 registered massive gains, reversing the trend observed for the previous years for these typical shoulder months of low demand and highlighting the trend of high imported natural gas prices.
Platts April and May LNG JKM worked out to an average of $10.88/MMBtu, commanding a premium over the average Platts JKM of $9.82/MMBtu for the peak winter months from December 2010 through March 2011.
Platts May JKM averaged $11.804/MMBtu over the period assessed from March 16 through April 15, gaining 113.3% year on year and 18.5% month on month, bucking the fall on the back of strong post-quake Japanese demand, with maximized output at their gas-fired thermal plants.
Platts reported previously that global LNG markets will significantly tighten over the next three years as a result of the nuclear power loss after the March 11 earthquake and tsunami.
The long-term impact of the Fukushima nuclear plant shutdown and the resulting slowing of growth of nuclear power will increase global LNG demand by 25 million mt/year to 401 million mt/year by 2020, up from previous estimates of 378 million mt/year.
