China has become the new Japan, as nation eschews coal for natural gas in its war on air pollution

China’s ferocious winter gas demand drove East Asia’s benchmark gas price to a three-year high this week

PUBLISHED : Friday, 05 January, 2018, 7:31am
UPDATED : Friday, 05 January, 2018, 7:30am

China’s war on air pollution through displacing coal by cleaner burning natural gas, has seen it eclipsed South Korea as the world’s second largest importer of liquefied natural gas last year, according to an industry data supplier.

The ferocity of mainland China’s winter gas demand also made it a major driving force for more than doubling East Asia’s benchmark gas price to a three-year high of US$11.2 per million British thermal units on Tuesday, surging from US$5.40 in the low summer season last year.

“In December, China imported 5.05 million metric tonnes of LNG, up 38.25 per cent [from the same month last year], registering its single highest ever monthly import volume since it started importing LNG in 2006,” said S&P Global Platts in a note on Thursday.

China’s natural gas demand jumped 18.9 per cent year on year in the first 11 months last year, much faster than the 6.6 per cent rise in 2016 from 2015.

The full year 2017 growth rate is poised to be the fastest in six years, as local governments heeded Beijing’s orders to convert industrial coal boilers and home coal burners into gas-fired units to combat air pollution.

The consumption spurt and lagging construction of storage facilities led to shortages during cold snaps, resulting in a change of Beijing’s policy to allow coal burning during shortages.

China’s import of LNG – chilled and pressurised natural gas shipped by special tankers across oceans – soared 48.4 per cent last year from 2016, compared to the 10.8 per cent increase in South Korea and 2.3 per cent in Japan.

The mainland’s volume of 37.9 million tonnes surpassed Korea’s 36.5 million tonnes, but is roughly half of Japan’s 81.6 million tonnes.

Imports accounted for 40 per cent of the mainland’s gas consumption in last year’s first 11 months, and LNG took up 54 per cent of imports, with the rest from piped gas.

Neil Beveridge, a senior analyst at American brokerage Sanford Bernstein has forecasted China to usurp Japan’s No. 1 position by the end of next decade, saying in a note on Thursday that “China has become the new Japan”.

China has become the new Japan
Neil Beveridge, Sanford Bernstein

The mainland’s clean air policies have played a key role in accelerating the elimination of global LNG surplus, with last year’s global demand rising at a faster-than-expected 10 per cent, he noted.

With a projection of the global demand-supply to reach a balance in the early to mid-2020s, Beveridge said buyers would need to return to the market to procure long-term supply and producers to get approval to start building some new projects this year in order for the balance to be maintained.

He projected global LNG demand to surge 85 per cent to 530 million tonnes by 2030 from 286 million tonnes last year, led by emerging markets.