LNG spot price to rise as demand from China’s cold cities grows

Analysts predict winter gas shortages in northern China will continue until 2020, leading to increased demand for LNG and higher spot prices.

Energy consultant group Wood Mackenzie said demand from China’s northern cities would rise tenfold, leading to a reliance on the spot market rather than long-term contracts.

"China will be forced to rely more on the spot market due to limitations in domestic production and (long-term) contracted supply. More significantly, this winter's trend is indicative of likely winter gas shortages through the rest of the decade," the consultant said.

Predicting that China’s gas production would not be able to keep up with demand, it said that opportunities for suppliers would increase, The Australian reported.

Adding to this is the fact only two LNG facilities are set to come online in the Asia-Pacific region next year, one of those being BG Group’s QCLNG on Curtis Island in Queensland.

"The implications are a tighter seasonal spot (LNG) market in Northeast Asia; increased opportunities for suppliers and further reforms needed to accelerate shale development," the group explained.

"Central Asian pipeline imports will be ramped up to capacity levels and significant volumes of spot LNG will be required.”

Annual global spot sales have risen to about 20 per cent of the global market as a trend to purchase off long-term agreements emerges.

Wood Mackenzie’s head of Asia-Pacific gas and power analysis, Gavin Thompson, said this trend was set to continue as seasonal demand increased.

"The pace of unconventional gas development, particularly shale and coal-bed methane, will play a critical role, but we still do not foresee significant production of domestic shale before 2020,” he said.

"China's overall gas demand will grow by around 14 per cent to almost 100bcm in 2013. In the coming winter alone, China's gas demand will reach 88bcm, with 60 per cent of that demand accounted for by northern China.

"To make up for the shortfall, orders for additional spot LNG cargoes are rising."

China is set to become one of the world’s largest LNG importers, with analysts predicting the nation will need a fifth of the 272 million tonnes of gas expected to be produced by 2018.

While emerging economies are set to account for 80 per cent of increased global gas demand over the next 20 years.

Asian LNG prices were at around $18.60 per million British thermal units (mmBtu) on Friday, up from $18.30/mmBtu last week.

BG Group's head of LNG trading Andrew Walker recently said the spot price for LNG would trade $1/mmBtu higher this year compared with 2012.

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.