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LNG supply will continue to exceed demand
Against the backdrop of economic recovery, relatively loose coal supply and frequent fluctuations in oil and gas prices, oversupply in the natural gas market will continue this year.
Market consulting organization gas reservoir research recently released data show that the first half of the domestic LNG (liquefied natural gas)consumption of 16.88 million tons, an increase of only 16.22%, and part of the replacement of pipeline gas consumption. In the context of the overall economic operation shows a return to the good trend, the terminal consumer market recovery is not yet expected. At the same time, domestic and imported LNG resource prices year-on-year downward, the first half of the domestic LNG ex-factory average price of 4863 yuan / ton, down 29.61% year-on-year; imports of LNG out of the station average price of 5470 yuan / ton, down 25.19% year-on-year.
Interviewees pointed out that the oversupply in the natural gas market will continue this year against the backdrop of economic recovery, relatively loose coal supply and frequent fluctuations in oil and gas prices. "The link between demand-pull consumption and price elasticity is getting closer and closer, prices are playing a bigger and bigger role in the market, and an effective price mechanism is needed for future market recovery." Huang Qing, chairman and chief information officer of Gasbank Information, noted.
High level of incremental market available
The National Bureau of Statistics recently released the latest data show that natural gas production in the first half of the year grew steadily, and imports grew at a faster rate. 56.63 million tons of imported natural gas, up 5.8% year-on-year. It is reported that since January this year, imported LNG has been a trend of increasing month by month, and now accounts for 38%. Meanwhile, domestic LNG production of 10.3095 million tons, up 1.3159 million tons, or 14.63%.
While imported LNG is rising, China produced 115.5 billion cubic meters of natural gas in the first half of the year, a year-on-year increase of 5.4%, of which 18.3 billion cubic meters of natural gas were produced in June, a year-on-year increase of 5.5%.
It is worth noting that although the supply of natural gas is increasing, but the downstream end demand has not seen a substantial increase in the overall recovery of the market there is still room.
Senior natural gas market practitioner Sun Chenglong said that the current natural gas consumption growth rate is less than expected, LNG supply appears to be a staged surplus, the cost of imported and domestically produced LNG both fall.
Public data show that in 2023, the European underground storage facility inventory level is high, the international LNG supply has a staged surplus, the international oil and gas prices fell, the domestic long term agreement as well as the spot cost linkage down. Among them, the import LCA cost was down by 9.07% year-on-year, while the import spot cost was down by about 49.12% year-on-year. As of June, LNG spot prices have basically been close to the same period in 2021.
"In addition to the growth of imported LNG and domestically produced gas, the second and third echelons have been intensively entering ships for shipment in order to fulfill the completion of the 2021 arrears of lifting the contracted gas from the national pipeline network; on the other hand, the reduction of spot cost has also stimulated the demand for picking and purchasing to a certain extent." Huang Qing said.
"At present, the level of gas storage in the storage reservoir is about 70%, and LNG receiving station inventory has been in the mid-to-high level for a long time, which has not been the case in previous years." An industry source, who did not want to be named, said.
And according to a number of institutions, China's total natural gas supply this year is expected to be about 405.4 billion cubic meters, excluding exports, inventory differences, and losses, the amount available to the market is 387.5 billion cubic meters, an increase of 32.5 billion cubic meters year-on-year. It can be seen that under the premise of declining consumption in 2022, this year's available market increment is more than 30 billion cubic meters, at a high level.
Demand-side resistance to high gas prices"Natural gas supply and demand has shifted toward a looser supply. Unless there are extreme weather or sudden supply disruption problems this winter, the market oversupply will continue in the second half of the year." Huang Qing said, "Overall, the limited boost in natural gas consumer demand has led to an oversupply in the market, and the situation of supply exceeding demand is likely to continue into October-November this year."
Why is the demand side of the performance less than expected? According to the China Energy News reporter, on the one hand, due to the previous sharp rise in international LNG spot prices superimposed on the domestic economy is in a period of recovery, industrial users have less incentive to use gas. "Due to the high LNG price is not accepted, some regions and industries appear coal to natural gas Fan substitution phenomenon. At the same time, China's coal supply is relatively loose, and the willingness of natural gas power generation enterprises to use natural gas has been reduced." Huang Qing said.
On the other hand, the growth of renewable energy power generation has also affected gas consumption for gas power. At present, China's renewable energy power generation leads the world, hydropower, wind power, solar power and biomass power generation installed capacity are the world's first, to a large extent, affecting the gas power generation. "This year, the domestic power gap is not big, the new energy overall performance is good, power plant peak demand is small. Coupled with the price of natural gas can not come down, power plants are not willing to purchase, affecting part of the natural gas consumption." Sun Chenglong confessed.
"In fact, the core or the demand side of the resistance to high gas prices, the price and other competing energy varieties prices have no advantage, the natural willingness to use is not strong." The above industry insiders who did not want to be named said.
Zhu Xingshan, secretary-general of the Petroleum Economics Specialized Committee of the China Petroleum Institute, also said that future gas and electricity development should rely more on the increase in production of domestic gas and price reforms to better spread the cost of gas.
The interviewees said that industrial fuel and natural gas power generation are the two industries with the greatest elasticity of gas demand, which is the key area to determine whether the market can come out of the downturn, and if there is no effective price mechanism, the market recovery will face obstacles.
The balance between supply and demand is in dire need of "leverage".
Huang Qing said that behind the ups and downs of LNG prices and the mismatch between supply and demand is the current vulnerability and strategic necessity of the natural gas production, supply, storage and marketing system.
Price is a lever to balance supply and demand. The National Development and Reform Commission (NDRC) issued the Letter on Providing Relevant Information on Upstream and Downstream Price Linkage Mechanism of Natural Gas in February this year, requesting localities to put forward specific opinions and suggestions on the establishment and improvement of upstream and downstream price linkage mechanism of natural gas. As of June, 15 provinces and cities have already established natural gas price linkage mechanisms.
Yang Shangming, chief engineer of China International Engineering Consulting Co Ltd, said upstream and downstream price linkage will become a trend, and natural gas market-oriented reforms should be continuously promoted. "The first is to promote the reform of natural gas gate price, fully liberalize the imported natural gas price control, establish the natural gas gate price adjustment mechanism linked to international oil prices, improve the terminal sales price and procurement cost linkage mechanism, while strengthening the supervision of natural gas pipeline transportation prices, according to reasonable revenue approved pipeline transportation prices; the second is to improve the system of natural gas supply guarantee, and pressure all parties to guarantee supply The third is to improve the urban gas franchise policy, improve the franchise access threshold, strengthen the safety operation and contract performance ability assessment and evaluation, the establishment of franchise exit mechanism."
Some industry insiders also suggested that we should orderly liberalize the competitive link, encourage all kinds of capital to enter the field of natural gas infrastructure construction and utilization, accelerate the marketization of natural gas prices, fully mobilize the enthusiasm of producers, and improve domestic natural gas production and peak shifting capacity. In addition, smooth sales and price linkage should also have a series of supporting measures for effective implementation. For example, the costs and expenses of commodities subject to the smooth sales policy should be made public and transparent, and the enterprises involved should fulfill the competitive procurement process, as well as the price stabilization mechanism for end products.