The environmental protection policy of 2018 has accelerated the development of domestic natural gas market. PetroChina’s research institutes estimate that natural gas consumption will reach 276.6 billion cubic meters in 2018, with an annual increase of more than 39 billion cubic meters, an increase of 16.6%, accounting for nearly 8% of total primary energy consumption.
On January 16, the Institute of Economic and Technological Research of China Petroleum Group issued the Report on the Development of the Domestic and Foreign Oil and Gas Industry in 2018 (hereinafter referred to as the Report). It said that due to the dramatic growth of China’s natural gas consumption demand, China’s external dependence on natural gas increased significantly in 2018. In that year, China’s natural gas import volume was expected to reach 125.4 billion cubic meters, an increase of nearly 30 billion cubic meters, and its external dependence was 45.3 Increase by 6.2 percentage points.
In the whole year of 2018, the “off season is not weak” feature is prominent. In the second quarter, natural gas consumption reached 61.8 billion cubic meters, an increase of 11.5 billion cubic meters. Sun Wenyu, a researcher at the Institute of Natural Gas Market Research, China Petroleum Research Institute, said that this was mainly due to the release of demand for non-residential gas in industry, power generation, chemical industry and a large number of coal-to-gas projects completed at the end of last year after the first quarter of the heating season “pressure non-resident protection” (pressure non-residential gas, protection of people’s livelihood gas).
The report predicts that the domestic demand for natural gas will continue to grow rapidly in 2019, but the growth rate will decline somewhat, and the import volume will continue to grow at a relatively fast rate.
“Coal to Gas” Increment Around Bohai Sea Raises Demand by a Large margin
Sun Wenyu introduced that the growth rate of different regions is different, among which, the Bohai Rim region grew by nearly 23%, mainly driven by coal-to-gas conversion of residents, heating, industry, commerce and public services in “2 + 26 cities”, with an estimated annual consumption of 59 billion cubic meters. Take Hebei Province as an example, the consumption increment exceeds 3 billion cubic meters. The Yangtze River Delta region is mainly driven by natural gas power generation, and its consumption is estimated to be 48 billion cubic meters. Overall, consumption growth in the central and eastern regions is relatively fast, while that in the western regions, especially in the Northwest regions, is slightly slower.
According to the use of natural gas, natural gas for power generation is the gas plate with the largest growth rate. The report predicts that in 2018, the gas consumption for power generation will be 61.5 billion cubic meters (22%) with an increase of 23.4%. Industrial and urban gas consumption will be 91.1 billion cubic meters (33%) and 99 billion cubic meters (35.8%) respectively, with an increase of 20% and 16.2% respectively. Chemical gas consumption is the only declining sector, affected by resource constraints and peak shaving, from ascending to descending by 5.1%, reaching 25 billion square meters.
The report predicts that domestic natural gas consumption will exceed 300 billion cubic meters in 2019, an increase of 11.3% over the same period last year. The government’s action plan of “Blue Sky Defense War” will continue to be implemented, and local governments will strengthen the control of loose coal burning. Environmental protection factors will remain the main driving force to promote domestic natural gas demand in the short term. In addition, due to the comprehensive role of policies in favor of small and medium-sized enterprises and stricter environmental protection, the upgrading of major gas industries such as building materials, metallurgy and chemical industry has also increased the demand for gas. But the growth rate is down 5.2 percentage points from 2018.
External dependence continued to expand
The external dependence of natural gas increased further to 45.3% in 2018, an increase of 6.2 percentage points over the same period last year. According to the report, natural gas imports in 2018 are expected to reach 125.4 billion cubic meters, an increase of nearly 30 billion cubic meters, which is the main source of domestic consumption growth. Central Asian pipeline gas and liquefied natural gas account for 17.2% and 26% of imports, respectively. The growth rate of imported pipeline gas is nearly 21%, expected to reach 52 billion cubic meters, mainly from Kazakhstan and Uzbekistan; LNG import growth is more rapid, due to market demand increases, new LNG receiving stations put into operation, new contracts entering the implementation window and other effects, it is estimated that the annual import volume of LNG will reach 54 million tons (about 73.4 billion cubic meters), an increase of 41.1% over the previous year, mainly from Australia and Kazakhstan. Tar and Indonesia, of which Australia accounts for 42% of LNG’s total imports.
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The report predicts that domestic natural gas production will reach 157.3 billion cubic meters in 2018, with an increase of less than 10 billion cubic meters and a growth rate of less than 7%, which is much lower than the growth of consumption. From the point of view of gas separation sources, the production and growth of CBM and CBM are slightly slower, and the production of shale gas has increased significantly. In 2018, the production exceeded 11 billion cubic meters, with a growth rate of 22.2%.
According to the report, domestic natural gas production is expected to exceed 170 billion square meters in 2019, up 8.6% from the same period last year, as oil companies respond to the state’s request to increase investment and workload in exploration and development. The new LNG receiving station production line will be put into operation and the East China-Russia line will be put into operation soon, with imports expected to reach 143 billion square meters, up 14% from the same period last year, and the degree of dependence on foreign countries will continue to increase.
In terms of import costs, in addition to the factors driving up demand, it is also affected by the year-round rise in oil prices. According to the report, the average CIF price of domestic LNG increased by more than 19% from January to November 2018, equivalent to 2.19 yuan per cubic meter. The average CIF price of pipeline gas imports increased by nearly 10%, about 1.49 yuan per cubic meter.
In the international market, LNG prices in the Asia-Pacific market rose significantly in 2018. The average import price of LNG in Northeast Asia was US$9.41 per million British heat units, up 23.3% year on year, mainly driven by demand. The average spot price of LNG in Northeast Asia was $9.87 per million British heat, up 43.3% year-on-year. Especially in October, importing countries replenished their winter stocks in advance, and the average monthly price once rose to $11.6 per million British heat. After the fourth quarter, due to mild weather, adequate inventory and capacity constraints at receiving stations, spot demand was weak and the average price was maintained at $11 per million, which was below market expectations.
The Impact of Sino-US Trade Friction
As one of the fastest growing countries in natural gas demand, China is a major potential buyer of natural gas in the United States. The United States is more demanding to expand exports of energy products such as oil and natural gas to China and reverse the trade deficit, but trade frictions have brought greater uncertainty. Since 2018, trade frictions between China and the United States have been escalating. The United States has imposed tariffs on Chinese imports. China has also taken counter-measures, including a 10% tariff on LNG imports from the United States since September 24, 2018.
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North America is the fastest growing region of natural gas production in the world. In 2018, its natural gas production was about 1.1 trillion cubic meters, an increase of 9.1%. Among them, the output of the United States exceeded 900 billion cubic meters, an increase of 11%.
The export scale of liquefied natural gas (LNG) in the United States continues to expand. In 2018, US LNG exports reached 21.15 million tons, up 63.2% year on year.
According to statistics in the Report, China imported 2.26 million tons of LNG from the United States in 2018, accounting for only 4% of China’s LNG imports and 12% of the U.S. LNG exports. China has become the top three destinations for U.S. LNG exports. The export capacity of LNG in the United States will also increase dramatically. It is expected to reach 66.2 million tons/year by 2020. Trade friction will make the United States seek other markets than China. However, the competition of multi-gas sources in Europe will intensify. The development of renewable energy will also bring challenges to the growth of natural gas demand. The demand increment of other Asian countries is limited. It is difficult for the United States to expand the market outside China in the short term, and project financing will face. Challenge.
China Petroleum Group Economic and Technological Research Institute believes that trade frictions may force Chinese enterprises to choose more LNG resources from Qatar, Australia, Russia and Africa. Sino-US enterprises may miss the opportunity period of signing long-term contracts, which will damage the common interests of both countries.
Natural gas practitioners in China and the United States need to wait for the conclusion of the 90-day negotiation period between the Chinese and American governments. However, the biggest source of new natural gas supply in 2019 is the United States and Russia, which are complementary and game-playing between China and the United States and Russia. According to the third-party data cited in the report, the United States will put several LNG export projects into operation, and the export capacity is expected to increase by 160%. Russia has three natural gas pipelines, Beixi 2, Turkish Current and China-Russia Eastern Line, built and put into operation, with a total transmission capacity of 156 billion square meters per year, and the pipeline’s natural gas export capacity will increase by 60%. In the future, Russia’s Yamal LNG project will bring about an increase in exports. 。 The growth of the United States and Russia is expected to have a significant impact on the global natural gas trade pattern.
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