China's LNG buyers seize on reforms opening access to import infrastructure
China’s smaller liquefied natural gas buyers are seizing on reforms that’ve opened access to import infrastructure to boost competition, issuing a spate of tenders for the fuel over the past month.
The second-tier gas firms, including Guangdong Energy Group Co. and Shenzhen Energy Group Co., are forecast to continue to seek more cargoes with spot LNG prices low, adding a new source of demand for global exporters, according to energy consultant FGE.
“We can expect more emerging Chinese players to be in the market for spot procurement in the coming months as China continues to open up its LNG receiving facilities,” said Alicia Wee, a senior analyst at FGE in Singapore.
Until recently, China imported most of its LNG through the three major state-owned energy giants, which owned pipelines, import terminals and distributed the fuel directly to smaller players. That’s changed with the formation of China Oil & Gas Pipeline Network Corp., known as PipeChina, which has consolidated the infrastructure into a single firm.
PipeChina has awarded over ten companies third-party access to its terminals, meaning smaller players can issue tenders directly when the need arises, instead of going through a larger state company, according to traders who requested anonymity to discuss private details.
Companies like Dongguan Daosen Natural Gas Co. which bought its first cargo via a direct tender this month, have been operating in domestic markets for years, according to Wood Mackenzie. Shenzhen Energy and Guangzhou Gas are among others to have bought cargoes in recent weeks.
While the infrastructure reforms are help diversify the field of importers, the majority of terminal access is still being awarded to the nation’s top buyers, including China National Offshore Oil Corp. and PetroChina Co. Terminal capacity available to third parties offered by PipeChina is 5.7 million tons per year, a fraction of China’s total capacity of 87 million tons per year at the end of 2020, according to Wood Mackenzie.
A further drop in Asian LNG prices could prompt another wave of spot cargo purchases by smaller firms this summer, said Beijing-based Wood Mackenzie research director Miaoru Huang.
The benchmark Japan-Korea marker fell to $5.56 per million British thermal units on March 2, the lowest level since last October, according to data from S&P Global Platts. Prices have since increased, in part on higher demand from the second-tier importers, and were trading on Monday around $6.70 for April delivery.
Smaller buyers are also signing more long-term deals. The firms accounted for 83% of total Chinese contracts signed last year, from a 26% share in 2019, according to BloombergNEF.