The decline in gas pipeline deliveries in China does not guarantee an increase in LNG demand

Chinese state-owned energy company PetroChina is trying to reduce natural gas imports through gas pipelines following a fall in domestic demand due to the spread of COVID-19, which is unlikely to increase short-term liquefied natural gas (LNG) imports due to high reserves and slow recovery in demand.

Total gas demand from the largest importer in the world is estimated to have risen to 70-80% this week from normal levels and is expected to recover fully by April as the spread of the virus is under control despite that the pandemic in other countries continues to be a precondition for market uncertainty.

About 85% of the factories are estimated to have started, but demand from industrial consumers is still low, according to a Beijing-based source.

“Many factories have resumed operations but are still operating at relatively low turnovers because the demand for downstream consumers has not yet fully recovered”, says the second source in southern China.

A third source in Beijing points out that some Chinese buyers with spare storage capacity and no LNG contracts are expected to enter the LPG spot market amid existing low prices.

Both Guangzhou Gaz and Guangdong Energy in southern China have announced bids for April-May and April-September deliveries, respectively, S&P Global Platts reported earlier. Meanwhile, high reserves continue to curb demand from Chinese energy companies, market sources said.

“PetroChina has said it has been forced to resell part of its LNG imports to the international market in order to ease the situation”, says the fourth liquefied gas dealer.

The price gap between spot commodities and fixed-term contracts has narrowed as a result of falling crude oil prices, and this may reduce China’s appetite for opportunistic purchases.

China consumed 306.7 billion cubic meters of natural gas in 2019, according to PetroChina, which equates to about 25.6 billion cubic meters per month.

Disruption of gas pipeline deliveries

Deliveries of gas pipelines from Russia and Kazakhstan have been reduced by about 550 million cubic meters per month, representing 13% of PetroChina’s average monthly gas imports.

China imported 50.1 billion cubic meters of natural gas through the pipeline network in 2019 – the equivalent of 36.3 million tonnes of LNG – Chinese customs data show. Most of these volumes came from PetroChina.

Kazakhstan, China’s second-largest supplier, announced that it had cut natural gas supplies by 20-25% last week. Kazakhstan exported 7.1 billion cubic meters of gas to China through the Central Asia gas pipeline in 2019 – the equivalent of 5.13 million tonnes of LNG.

A source from PetroChina confirmed that the company has lowered its gas imports from Kazakhstan, but declined to comment on the cause of the coronavirus force majeure.

In addition, Russian gas giant Gazprom and CNPC, the parent company of PetroChina, have agreed to temporarily close the Siberia Power pipeline in the second half of March for routine maintenance, but it is not clear how long this will last.

Another source said last Thursday that the shutdown was part of Gazprom’s routine support as the Russian supplier was unaffected by force majeure.

The Siberia Power Pipeline began sending gas to China in December 2019 and is projected to transport 5 billion cubic meters of gas in 2020. With full capacity, the pipeline is designed to transport 38 billion cubic meters of gas annually to China.

Currently, PetroChina imports gas through three major gas pipelines – Central Asia gas pipelines with a projected transmission capacity of 55 billion cubic meters per year, China-Myanmar gas pipeline with a projected transportation capacity of 5 billion cubic meters per year and the northern section of Sino-Russia a gas pipeline that is connected to the Siberia Power pipeline.

Turkmenistan is China’s largest pipeline gas supplier. The country sent 33.2 billion cubic meters of gas – the equivalent of 24.1 million tonnes of liquefied gas – to China via the Central Asian gas pipeline in 2019.

It is unclear whether PetroChina also reduced gas imports from Turkmenistan.