Argus Media Limited

09/30/2021 | News release | Distributed by Public on 09/30/2021 04:33

China to cushion residential gas users from high prices

China will control domestic gas prices to protect residential gas users ahead of the 2021-22 heating season as spot LNG prices continue to rise.

The impact of international gas price increases on residential and livelihood gas users will be kept to a minimum as much as possible, China's main economic planning agency the NDRC said on 29 September.

During January-August 136.1bn m³ of natural gas was produced domestically, up by 10.8pc compared with the same period last year. This is in line with government policy to progressively increase domestic gas production and ensure that pipeline imports from central Asia are stable ahead of winter. China imported 37.9bn m³ of pipeline gas during January-August, higher from the 31.6bn m³ it imported in the same period last year.

Injection targets at gas storage tanks must be hit before the start of the winter season, which typically runs from the end of October or early November to March the following year. Chinese state-controlled PipeChina's 10.4bn m³ Wen23 gas storage tank has been filled with more than 2bn m³ of gas as of 24 September, one month ahead of schedule.

Asian spot LNG prices have rallied to near record-high levels in recent weeks, largely driven by unprecedented gains in European gas hub prices following lower than average regional inventories. The front half-month ANEA price, the Argus assessment for spot deliveries to northeast Asia, was assessed on 29 September at $31.675/mn Btu for second-half October deliveries, up from $18.885/mn Btu on 1 September and more than sixfold up on the $4.905/mn Btu assessed exactly a year earlier. The ANEA front half-month price rose to an all-time high of $39.720/mn Btu on 13 January this year.

China's state-controlled PetroChina also cut on 29 September the minimum bid requirement for feedstock gas, ahead of the week-long national day holiday during 1-7 October. This will result in lower production costs for domestic LNG producers.

PetroChina allows domestic LNG producers to bid for a pre-stipulated volume of feedstock gas about twice a month. The bidding process is usually completed about two weeks in advance of each delivery window. The firm will typically set a limit on the total volume of feedstock gas available for bidding, but has allowed for unlimited bidding for feedstock gas that is to be supplied over the holidays. This suggests that PetroChina's feedstock gas inventories are more than sufficient, market participants said.

Minimum bid requirements for feedstock gas have been cut to 2.88 yuan/m³ ($0.45/m³) for 1-10 October. Successful bids were at Yn3-3.08/m³ for 11-15 October after the holiday. Production costs as a result over 1-10 October will be about Yn4,800/t compared with Yn4,900-5,100/t over 11-15 October.

This drop in production costs will help to cushion some of the shock to LNG producers as well over the holiday, when speed restrictions on trucks usually limit LNG transportation.