Local governments in China are pushing households to switch from LPG to piped natural gas, adding to the challenge of weak commercial and industrial demand for the fuel during the Covid-19 pandemic.
Sales volumes were 20pc lower during the first eight months of this year compared with the same period in 2019, according to LPG importers in east and south China.
Residential LPG demand in the southern city of Shenzhen in Guangdong province is shrinking as the local government requires residential buildings to use piped natural gas, a local trader said. Some communities with access to natural gas pipelines are also no longer allowing LPG cylinder deliveries, the trader said.
But the actual use of natural gas may be much higher as many households within these residential communities have not switched away from LPG because of the high costs associated with opening an account with natural gas suppliers, the trader said.
Total LPG import volumes at the five wholesale terminals in the Pearl River Delta area — Sinobenny, Jovo, Chinagas, Siamgas and New Ocean — decreased by 14pc on the year to 2.23mn t over January-August, data from oil analytics firm Vortexa showed. And import volumes at the Sinobenny terminal in Shenzhen declined by 42pc to 210,000t, according to the same data. The slump was largely a result of the switch to natural gas.
China's LNG sales volumes during the first half of this year increased by 17.5pc from the year-earlier period to 1.65bn m³, with piped natural gas supplies accounting for 1.41bn m³, according to an interim report published by city gas firm Shenzhen Gas, the parent company of Sinobenny. Shenzhen Gas owns LPG and LNG import businesses in more than 11 provinces across China.
The report also showed that 132,000 households in Shenzhen switched to natural gas from LPG in the first half of 2020, while LPG wholesale volumes in the key Pearl River Delta area fell by 32.7pc from a year earlier to 192,000t during January-June.
In east China, LPG is mostly used in the commercial sector in cities and in rural households besides the petrochemical industry. But safety concerns following the June explosion of a road tanker carrying LPG and subsequent cylinder blow-ups have sparked a debate about switching to natural gas in the food and beverage sector in east China's Zhejiang and Jiangsu provinces. Some restaurants in Jiangsu have stopped using LPG cylinders and switched to electricity or natural gas.
A slowdown in domestic and global economic activity because of the Covid-19 pandemic has also contributed to the fall in LPG demand. Revenues from China's food and beverage sector have started to recover but remain 26.6pc lower than the first eight months of 2019.
In south China and the bordering inland and eastern provinces, industrial demand for LPG has slumped because of a slowdown in international trade. Many pottery and porcelain manufacturing plants have shut down because of a lack of overseas orders, said an LPG importer in the Chaoshan area. Industrial demand was only 30-40pc of levels in the first eight months of 2019, he said. Industrial demand typically hits a peak in September as manufacturing plants try to fulfil overseas orders for the Christmas holiday season, but it has been quiet this year, he said.
The lack of international orders and switch to natural gas have dented industrial demand for LPG, said a refiner in the southwestern Fujian province.
One of China's largest pottery and porcelain manufacturers has switched to natural gas from LPG because of safety concerns.
Consistently lower prices for LNG delivered to Asia-Pacific markets compared with delivered LPG prices (see graph) are also likely leading to a rise in residential demand for LNG.
China's natural gas supplies — a combination of domestic production and LNG and pipeline imports — increased by 6.5pc on the year to 181.7bn m³ over January-July, according to data from China's customs and the national bureau of statistics.
The country's underground natural gas storage capacity will reach 14.84bn m³ by the end of this year, 23.4pc higher from the end of 2019, according to Argus estimates.
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