Firm economic growth in the immediate aftermath of the country's initial Covid-19 outbreak last year, coupled with the Beijing Winter Olympics in February 2022, has compelled the central government to ensure sufficient stocks of gas following a coal shortfall that has prompted electricity rationing in some Chinese provinces.
Natural gas consumption in China could hit 365bn-370bn m³ this year compared with 328bn m³ in 2020, according to forecasts from China's National Energy Administration. This has raised concerns among Chinese LNG buyers about supply stability during the heating season with higher spot LNG prices and tighter coal supplies.
Beijing is ensuring that the country has sufficient gas supplies even before the start of winter. Natural gas production during January-August totalled 136.1bn m³, up by 10.8pc compared with the same period last year. Imports for the same period rose even more rapidly, up by 22.2pc, to 79.31mn t or 109.4bn m³ equivalent. This has proved prophetic as imported LNG prices have rallied as the year progressed. The front-half month average ANEA price, the Argus assessment for spot deliveries to northeast Asia, rose by 30pc to $11.924/mn Btu in August from $9.1495/mn Btu in March.
Heating top priority
City gas accounts for a relatively small percentage of China's total natural gas consumption, adding about 10bn-12bn m³/yr, according to data from China's main economic planning agency the NDRC. But Chinese domestic gas is more than sufficient to cover this demand, according to the deputy director of the Beijing Gas Group Research Institute Bai Jun.
"Gas for people's livelihoods, including heating, are in immediate demand but do not account for a large proportion of natural gas consumption. Even during the peak demand in the winter heating season, domestic gas is sufficient to cover this part of the demand," he said.
But a colder than expected winter may affect winter gas demand and will require constant monitoring, market participants said.
China as a result has made it a point to increase storage capacity as much as it can before winter hits. Underground working gas storage is expected to hit a record high of 14.4bn m³ before the start of the winter season, 4bn m³ higher than the same period last year. NDRC data show gas injections have exceeded 80pc as of August. Data for September is unavailable.
PetroChina's Tangshan terminal in Hebei province, ENN's Zhoushan terminal in Zhejiang province and Sinopec's Qingdao terminal in Shandong province have also added an additional 1.28mn m³ of storage tank capacity this year.
The third phase of PetroChina's Rudong terminal has been operational as of 27 September, adding another 400,000m³ of storage.
China has a range of gas supply options at its disposal to ensure it is not overly reliant on a single source. Aside from ensuring sufficient storage capacity, the government is boosting pipeline imports while increasing domestic production.
Russian pipeline gas imports this year are expected to increase by about 5.91bn m³ from 2020 to 10bn m³ based on term contract volumes. Although the Power of Siberia pipeline will have maintenance during 22-29 September, with all flows from Russia to China suspended as a result, it is unlikely to have an adverse impact given the relatively short period.
Domestic gas production will also continue to be strong, expected to maintain a growth rate of about 10pc this year, said Bai.
This will mean that China's domestic natural gas production this year should hit 210bn m³, in line with the targets set out in the 2021 China gas development report. For China's gas production to reach 230bn m³ by 2025, domestic gas production this year will need to exceed 200bn m³.
China's LNG imports this year could total 37.4bn-39.6bn m³ across September-December, up slightly from 34bn m³ in the same period a year, assuming that the country's LNG-pipeline gas proportion remain unchanged from January-August and its pipeline volumes are similar as last year, except those from Russia. Imports accounted for 44.5pc of China's total gas volumes during January-August. Pipeline imports during September-December last year totalled an equivalent 11.635mn t (16.05bn m³), according to customs data.
It is estimated that China's total LNG imports this year will be approximately 109bn-111bn m³, an increase of 16.5bn-18.7bn m³ or 17.8-20.2pc up from last year.