Will China and Japan contend for LNG?

Chinese firms are reported to be looking for spot Liquefied Natural Gas due to the supply shortage caused by recent chilly weather.
Although natural gas imports through pipelines are relatively cheaper and are flexibly  transported, current supply shortage seems to force Chinese to buy spot LNG.

Natural gas demand in China is forecasted to surge in the future.
U.S. Energy Information Administration predicts that Chinese natural gas demand exceeds Japan in 2012 and will be two times larger than Japan in 2020's.

The following chart which is drawn by the EIA data released in 2011 is neglecting the Japanese gas demand boosted by the nuclear plants shutdown. Natural gas demand in Japan has already exceeded 4 trillion cubic feet in 2011. Even though, the long term comparison between Japan and China seems to follow the relationship shown in the chart.

Some people expect that Japan and China will compete on the procurement of LNG in the near future. However, Japan's LNG demand is unlikely to surge further, as EIA predicted.

Japan's historical high LNG imports was recorded in January 2012 at 8.15 million tonnes. Much larger imports than that are unlikely to be seen in the future.

Although thermal power plants in Japan have raised operation rates due to the nuclear power supply outage, the country's LNG unloading has been already reached to the physical capacity limit. Japan has to construct new unloading facilities if wants to import more LNG.

Moreover, Japanese power companies are aiming to resume nuclear units rather than building new thermal power plants. Therefore, long-term growth of LNG demand in Japan seems to be slowly.
The nation's LNG imports in Jan-Nov in 2012 rose 11.6% on year to 79.6 million tonnes, but the November figure fell 4.5% from a year ago.

Meanwhile, China's natural gas imports during Jan-Nov in last year rose 36.7% from a year earlier to 38.1 billion cubic meters (equivalent to 28 million tonnes of LNG). Domestic natural gas production in the same period only increased by 6.8% on year to 97.6 bcm, so imports made up for the shortage caused by 15% on year growth of consumption during the period.
China's LNG imports during the first eleven months in 2012 rose 20.3% on year to 12.87 million tonnes, which accounted for 45% of total natural gas imports.

Currently, Chinese LNG imports are about one-sixth of Japan. Because China only has six LNG import terminals with total capacity of 18.8 million tonnes per year. But the country's LNG terminals capacity has doubled in the past two years and the 12th Five-Year Plan aims to boost the nation's total LNG unloading capacity to 87 million tonnes per year by 2020.

However, China is also constructing gas pipelines toward Central Asia or Russia. Its gas imports through the pipelines are forecasted to rise to about 40 bcm (equivalent to 29 million tonnes of LNG) by 2020. Domestic shale gas production is predicted to reach to about 100 bcm by 2030.

EIA forecasts 30.4 bcm of natural gas demand in China in 2020. Meanwhile, domestic production could be about 21 bcm due to growth of shale gas supply, so required imports would be less than 10 bcm.
If pipelines will deliver 40 bcm in 2020, required LNG would be less than 5.5 bcm which is equivalent to about 25 million tonnes per year.

Because newly constructed unloading facilities in Qindao or Hebei etc. are estimated to add 12 million tonnes per year of capacity within two years, China could hold more than 30 million tonnes of enough LNG unloading capacity.

If China increases LNG unloading capacity to 87 million tonnes following the five-year plan, it could be too excess. Lots of Chinese LNG import facilities projects are likely to be cancelled or downgraded, except for the case of suspending shale gas development.

On the other hand, Persian Gulf nations are aiming to raise LNG supply, while the US is going to start LNG shipment to Asia. Even if China increases natural gas consumption with steady economic growth, LNG supply in Asia seems to be likely to be ample.

1 comment:

  1. Thanks for the post. Nicely explained information of contend for LNG regarding to China and Japan.The comparison between China and Japan, the China has a more natural gas demand than Japan in the market. The history of Japan, it was large LNG imports country and it was made record in Jan 2012. LNG Market Report