Expert urges improved LNG storage facilities

The re-sale of some liquefied natural gas (LNG) cargoes after demand waned this spring shows that China’s natural gas storage capacity needs expansion, an industry expert said.

LNG trading units under China National Offshore Oil Corp, Sinopec Corp and China National Petroleum Corp (CNPC) are reselling LNG set for delivery later this month and in April, a notable shift from their buying binge last winter, Reuters reported on Monday.

Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, said that the sales reflect a rapid fall in domestic LNG prices in recent weeks due to seasonal factors.

“LNG traders might lose money by selling the cargoes, but storing the fuel on ships costs a fortune, and if the traders believe LNG prices won’t pick up in the near term, they might choose to resell to cut their losses,” Lin told the Global Times on Monday.

The price of LNG has been falling sharply. On Friday, the average price for domestic LNG was 3,462.5 yuan ($547.5) per ton, according to industry portal 100ppi.com on Monday, compared with an average of 5,175 yuan per ton on January 12.

Lin said that “the situation reflects China’s relatively underdeveloped LNG storage infrastructure. Onshore storage costs less than using LNG ships, so if there was more storage capacity, these companies could opt for onshore storage and wait for demand and prices to rebound. This isn’t possible now due to China’s limited LNG storage capacity.”

Lin called for capacity to be built, as additional storage capacity could reduce the volatility of LNG prices in China.

“China’s LNG consumption is expected to grow 15 percent this year,” Lin noted.

An employee staff at the Guangdong Dapeng LNG Co in South China’s Guangdong Province surnamed Cui told the Global Times on Monday that traders operating on long-term contracts will experience little or no impact from price fluctuations.

In the 2018 energy sector work guidance issued by the National Energy Administration on March 7, the agency said China will encourage the use of long-term contracts in ensuring natural gas supply. The country also plans to increase natural gas consumption to 7.5 percent of total energy consumption in the year compared with 6.4 percent in 2016.

China’s natural gas consumption was 235.2 billion cubic meters in 2017, up 17 percent yearon-year, according to CNPC, with imports supply about 40 percent.