Uncertainty Lingers Over LNG As Chinese Demand Wavers

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Includes: BOIL, DCNG, DGAZ, FCA, FCG, FXI, GASL, GAZ, KOLD, UGAZ, UNG, UNL
by: Oilprice

Summary

Liquefied natural gas prices were one of the best performers of the past week.

But despite that short-term lift, there’s a lot of worry in the LNG sector these days.

This new data looks to spell trouble for China’s LNG import sector.

Liquefied natural gas (LNG) prices were one of the best performers of the past week. With the Japan-Korea Marker price jumping 17.2 percent in a matter of days - in the wake of a production outage at Russia's Sakhalin-2 export terminal.

But despite that short-term lift, there's a lot of worry in the LNG sector these days, which was enhanced by news late last week that the world's #3 LNG consumer just saw demand drop for the first time ever.

That big buyer is China, where a new report from the U.S. Energy Information Administration showed that LNG imports fell 1.1 percent during 2015 - to 2.6 billion cubic feet per day (bcf/d).

As the chart below shows, that's the first time China's LNG imports have fallen since the country started bringing in gas, back in 2006.

Analysts at the EIA blamed the drop on both a general slowdown in the Chinese economy and lower prices of competing fuels in the country. They noted for example, that many Chinese factories that use LNG can also run on liquefied petroleum gas (LPG) - a commodity that has become notably cheaper than LNG of late.

The new data look to spell trouble for China's LNG import sector, with EIA pegging the country's total import re-gasification capacity at 5.4 bcf/d - with another 3.4 bcf/d currently under construction. That adds up to 8.8 bcf/d, well above the 2.6 bcf/d of imports that China saw during the past year.

Analysts did note that China's authorities are trying to spur natural gas consumption, having lowered industrial prices for the fuel by 28 percent, or $2.95/MMBtu, as of November.

But absent a big rebound in China's LNG demand, the global sector could be left without one of its key growth engines; perhaps, part of the reason big players have been hesitant on the industry of late - with Shell (NYSE:RDS.A) last week announcing a delay in final approvals for a major LNG export development on the Canadian west coast.

Watch for interim data on Chinese LNG imports in 2016 - to see if lower gas prices are spurring demand. Also for big LNG projects globally having a harder time with funding and construction, as uncertainty lingers over the sector.

Here's to a change in tempo.

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