LNG Prices Climb as China Scrambles to Secure Supply

As millions of Chinese households make the switch from coal to natural gas for the first time this winter season, China is buying up liquefied natural gas cargoes on the spot market, pushing prices higher than the prices of the oil-indexed LNG cargos in the long-term delivery contracts.

Asia’s spot LNG prices have jumped by more than two-thirds since May this year to $9 per million British thermal units. This compares with oil-pegged prices of some $8 per million British Thermal Unit, Oil Price reported.

In July, the International Energy Agency predicted that China would account for 40% of the global annual growth in natural gas demand over the next five years.

Chinese imports of natural gas are running at record rates, as Beijing pushes on with its cleaner energy agenda that should see the country satisfy 10% of its energy needs with gas in 2020, up from what was only 5.9% in 2015.

The country’s LNG imports in September surged to their second-highest on record, as the country imports an increasing amount of gas to fight severe pollution and to service households in the north who will be using gas for heating this winter for the first time.

China’s September LNG imports soared by 37% compared to September last year, according to data by the General Administration of Customs. The volume was a bit lower than the all-time high of 3.7 million tons of LNG imports in December last year. Year to date, Chinese LNG imports soared 43%.

In the first week of October, Asian spot LNG prices jumped to their highest level since January, driven by the Chinese gasification push, and were slightly higher than oil-linked LNG prices.

Now that winter is drawing closer, prices are up even more, with Chinese scrambling to import as many LNG cargoes as possible.

“The Chinese are in panic mode. They clearly underestimated the push in demand from their gasification program. Now they are soaking up LNG spot cargoes where they can. And suppliers are happy to deliver, at a premium,” a trader with a major commodity merchant told Reuters.

“I‘m fairly certain China will break a new import record very soon and that spot prices will break through $10,” the trader said.