Gas prices under upward pressure

Rising pressure to tackle air pollution during peak winter months for natural gas consumption will see the mainland increasingly compete with other nations in the region for the cleaner-burning fuel in the spot market, forcing prices to push higher in the next few years.

Mainland spot market purchases have been constrained because of delays in gas price increases and liberalisation of the pricing system, as well as a lack of capacity to regasify the liquefied natural gas that is the primary mode of delivery for imported spot cargoes.

Although mainland LNG imports surged from US$5.8 billion in 2011 to US$8.2 billion in 2012, and with the value of imports for the first 10 months of last year matching 2012's full-year total, spot-market supply made up a relatively steady proportion - 15.5 per cent in 2012 and 17.5 per cent in the 10 months, according to Bloomberg data.

"The need for additional spot LNG during winter, or at least more seasonal shape to China's future long-term contracts, will become a defining feature of [its] LNG market," said Gavin Thompson, the head of Asia-Pacific gas and power analysis at London-based energy consultancy Wood Mackenzie.

"This will increase competition among Asian spot LNG buyers during peak demand periods and allow suppliers to drive spot prices upwards during winter months."

With northern China's residential gas demand in winter expected to be up to 10 times its non-peak requirement, Wood Mackenzie estimates the region will account for 70 per cent of the mainland's annual spot LNG demand this year - with about 90 per cent driven by winter demand.