Global Oil & Gas: LNG Remains In Tight Supply In This Key Market

lng-shipPetroChina has begun cutting natural gas deliveries to certain industrial clients signaling still tight supply of the fuel that caused rather severe shortages in northern China in December.

Reuters quotes four unnamed sources as saying the move aimed to reduce the risk of new shortages this winter and also included raising gas prices for some large buyers, including gas distributors and liquefaction plant operators.

The news comes after the supply order deadline for state gas suppliers with their larger clients, which, as per the state planning commissions’ requirement, was the end of April. The deadline was set in a bid to gain clarity into demand and supply patterns early on in the year.

In January-April, China’s gas consumption increased by 14 percent to 71.1 million tons, which has driven LNG prices even higher on the spot market after a surge in December prompted by an urgent boost in imports to fight the shortage created by the rush to reduce the country’s reliance on coal power generation capacity.

Last year, gas imports jumped by 27 percent to 68.57 million tons, including pipeline and LNG shipments, with LNG prices hitting a three-month high on the spot market.

This year, China’s largest refiner, Sinopec, signaled efforts were being made to avoid a repeat of the December shortages. In April, the company said it had plans to boost its LNG import capacity to 26 million tons annually over the next six years from the current 9 million tons. State energy companies have also begun turning depleted gas fields into gas storage facilities to avoid a repeat of this winter’s supply crunch.

This capacity build takes time, however, so it seems PetroChina is trying to avoid a supply crunch by limiting supply before the peak in demand. According to one source from a gas liquefaction plant in Inner Mongolia, this is the first time PetroChina has cut supplies before the summer, and this will deal a blow to the plant’s profit margins.

By Irina Slav for Oilprice.com

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