China launches spot gas exchange in Shenzhen

China has launched its third natural gas spot trading centre, at Shenzhen in the southern province of Guangdong. This is the first spot gas market in southern China, adding to similar exchanges at Shanghai in the east and Chongqing in the southwest.

The Shenzhen market, which officially launched yesterday, is operated by the Qianhai Mercantile Exchange (QME), a joint venture led by a subsidiary of the Hong Kong Exchange and state-controlled firm Qianhai Financial Holdings.

The exchange is based in Shenzhen's Qianhai free-trade zone and is open to international participants. It offers six products — natural gas traded in units of GJ, m³ and tonnes for delivery in Guangdong province, and natural gas traded in tonnes for delivery to Jiangxi province in east China, Hunan province in central China and the major municipality of Tianjin in the northeast.

The products will be traded in yuan from 9:00-16:30 local time. There is no handling fee or commission but trades require a 10pc security deposit as a margin.

The Shenzhen trading centre's key focus will be the Pearl River Delta, but it will also look to expand coverage in southern China and even across the country, a Shenzhen government official said.

The average settlement price was 3,720-4,208/t ($565-640/t) on the first day of trading, according to QME. Most of the trading was done on a tonne basis. Total trading value was over Yn20mn.

The start of the Shenzhen market follows in the footsteps of the Shanghai and Chongqing petroleum and gas trading exchanges, which were launched in 2016 and 2018 respectively. The Shanghai exchange is backed by state-owned media company Xinhua, which has a 33pc stake, while state-controlled energy firms Sinopec, PetroChina and CNOOC each have 10pc. Total volumes on the Shanghai exchange were 40.3bn m³ last year.

Sinopec, PetroChina and Chongqing's state-owned energy investment arm each hold 13pc stakes in the trading centre in Chongqing, which also focuses on inland pipeline gas trading and overseas LNG tenders. Trading volumes were 17.8bn m³ in 2019.

The INE derivatives exchange in Shanghai is planning to launch natural gas futures, but is still in talks with China's Securities Regulatory Commission to secure the necessary approvals.