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Global Gas: China drives higher Asian LNG seasonality

05 Oct 2017 15:10 (+01:00 GMT)
Global Gas: China drives higher Asian LNG seasonality

London, 5 October (Argus) — Asian LNG demand has become more seasonal because China's programme of installing gas boilers has made the country's consumption increasingly sensitive to changes in the weather.

Asia-Pacific LNG imports totalled 253mn m³ in the 2016-17 winter compared with 204mn m³ in the 2016 summer.

Winter receipts accounted for 55.3pc of total imports over the 2016-17 gas storage year, running from April 2016-March 2017. This share was up from 53.1pc in 2015-16 and 52.3pc in 2014-15.

Northeast Asian LNG prices have already climbed heading into this winter after holding in a steady range less than $1/mn Btu above the TTF for much of the summer.

And Asia's demand growth could be strongest in the winter as Chinese residential heating demand climbs.

Gas heating turns up

China is pushing to switch more customers to gas or electric heating, which is forecast to lift consumption rapidly over the coming years.

Demand had already started increasing more as the weather turned colder last winter. Each 1°C drop in temperature added almost 11mn m³/d to apparent gas demand — not including storage movements — in October 2016-March 2017 compared with about 7.7mn m³/d in the previous two winters.

Consumption from other sectors has also increased, which has raised demand.

The correlation between temperatures and demand in the 2016-17 winter adds about 50mn m³/d to demand over October-March compared with the relationship a year earlier. This assumes temperatures in Beijing in line with the seasonal norm.

The addition of more customers to the gas grids could further steepen that trend this winter.

LNG provides supply flexibility

Chinese production is also seasonal, while pipeline imports are typically higher in the winter months.

But LNG has provided the most supply-side flexibility, climbing sharply during colder periods as well as jumping in the past two years in response to a more general increase in consumption, regardless of the weather.

China's LNG imports were over 150mn m³/d of gas equivalent in December-January, when average temperatures in Beijing were close to 0°C. Deliveries dropped to 114mn m³/d in February, when temperatures were just below 3°C and much lower in October and March when the weather was milder.

November was the outlier, with strong receipts of 122mn m³/d when temperatures were 4.7°C — higher than in February — which may have been driven by stocking up ahead of the coldest part of the winter.

Each 1°C drop in temperature added about 5.3mn m³/d of gas equivalent to monthly LNG imports last winter. Given this correlation, temperatures 1°C below the seasonal norm over the winter would require China to import an extra 280,000m³ each month compared with average weather. This is equivalent to almost two standard-sized cargoes.

China would need to import considerably more than expected in the event of cold weather, but could have spare cargoes to offload if temperatures are above average.

Winter price spike

Northeast Asian LNG prices for delivery in the coming months have opened a wide premium to the Dutch TTF and UK NBP than contracts for delivery during the 2017 summer.

The ANEA front half-month market also held a wide premium to northwest European hubs for much of last winter.

LNG supply is typically broadly flat throughout the year, although producers often schedule annual maintenance for the low demand autumn and spring periods.

Demand in many major importing countries — including China, Japan and South Korea — usually peaks in the cold winter months. But some gas consumers, such as Egypt, have summer consumption peaks to meet cooling demand.

A shift to stronger Asian heating demand as Chinese residential consumption rises could draw more supply away from Europe during the winters. In this event, Europe's traditional role as a demand sink for excess supply not needed in premium markets could be greater in the summers than the winters.

Northwest Europe's LNG imports tumbled last winter and South Hook sendout has again been slow early this summer with fewer Qatari cargoes heading to the UK.

European LNG sendout was up during the summer, largely driven by strong deliveries to Italy and Spain more than offsetting below-average Belgian and UK receipts.

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Share of storage year LNG imports in winterPc
Country2015-162016-17
China56.158.7
Japan52.253.8
South Korea57.763.0
Taiwan45.547.9
India52.548.8
Pakistan55.558.9
Thailand44.550.8
Total53.155.3

Northeast Asia's premium peaks in winter $/mn Btu

China's supply mix mn m³/d

Asian LNG imports by gas storage year mn m³

Northwest Europe's sendout low last winter GWh/d

Asian LNG import share by season pc

Asian LNG imports spiked last winter mn m³ of LNG

Chinese demand at temperature °C