The global natural gas market will remain oversupplied for the next two years but low prices will not hinder China from stepping up domestic output and reducing its reliance on imports, according to a senior executive of one of China’s largest natural gas distributors.
“This year, the coronavirus pandemic has rendered the global gas market in clear oversupply” situation, Zhang Yuying, president of ENN Energy, said in an interview. “As more gas production and processing capacity comes on stream, I expect the excess supply to be sustained well into 2022.”
In China, however, gas demand is expected to hold up in 2020 at close to last year’s level, and production will be sustained at recent years’ “high level” since producers have been incentivised to develop projects as planned, given the state gas pipelines reform, said Zhang, whose firm is based in the northern Hebei province.
ENN served 20.9 million residential customers in 2019, according to its annual report. Most of ENN’s 149,000 commercial and industrial customers have seen consumption recovered to pre-pandemic levels, Zhang said, as the firm aims to increase its gas volume by 12 to 15 per cent this year, he said.
An industry reform last year has seen China forming the National Petroleum and Natural Gas Pipe Network Group to manage the nation’s oil and gas pipelines to help secure its long-term energy supply.
Zhang said the Pipeline Group is expected to start commercial operation by September, by which time the pipelines – previously owned by individual companies predominantly to serve their own needs – will be open to all gas producers. It will help lower gas transmission cost, speed up pipelines investment and boost demand, he added.
The Pipeline Group is in talks to acquire the major oil and gas pipelines from state-owned oil and gas firms China National Petroleum Corporation, Sinopec Group and China National Offshore Oil Corporation.
China’s natural gas demand grew 8.1 per cent year-on-year in the year’s first five months, after increasing 9.4 per cent in all of 2019, according to the National Development and Reform Commission. Production grew 11.5 per cent last year, the fastest in a decade, while import grew 6.5 per cent, the slowest since 2015.
Beijing has ordered the state energy giants to increase domestic oil and gas production to cut its dependence on imports. Oil imports made up 71 per cent of its domestic consumption last year, while foreign gas accounted for 43 per cent.
Zhang said ENN will take advantage of low overseas gas prices to cut procurement cost and boost sales.
The average price of imported LNG arriving at Chinese ports has plunged by as much as one-third this year to 2,060 yuan a tonne on June 10, according to an index compiled by the Shanghai Petroleum and Natural Gas Exchange. It has rebounded to 2,650 yuan last week.
“ENN may use cheaper spot market LNG to lower its overall gas cost so as to deliver better-than-peers [profit] margin,” said Nomura analyst Jamie Wang in a note last week.
He expected ENN to import 1.1 million tonnes of LNG via long term contracts this year, and at least 500,000 tonnes via the spot market, at an average 44 per cent discount to contract prices.
China resumed importing LNG from the US in April after a year-long hiatus as Beijing exempted a 25 per cent import tariff to allow it to meet purchase targets under phase one of the US-China trade deal cobbled in January.
“ENN is currently not importing US gas. Our procurement decisions take into account a basket of factors including prices, reliability and flexibility,” Zhang said, adding most of its import comes from Qatar and Australia.
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