China, the world’s second largest LNG importer, has ramped up preparation for the upcoming winter through early procurement plans and a series of new gas infrastructure projects, putting a freeze on market expectations of a winter bull run for Asian spot prices. Other factors such as stable central Asian pipeline imports could also depress China’s appetite for LNG spot cargoes, as the country officially enters the winter season this week, when centralized heating systems in the north will be switched on until March to counter a region-wide drop in temperatures. These measures were underpinned by state planner National Development and Reform Commission’s firm pledge to guarantee gas supply to the residential areas this winter and avoid a repeat of last year’s winter gas shortage, according to industry insiders.
Under heavy political pressure, Chinese importers have front-loaded their winter requirements through signing of strip-deals or winter-heavy term contracts.
“The [National Oil Companies] have been buying winter cargoes throughout the year, no matter on dips or on rallies, smoothing the average procurement costs and building up their the winter portfolios,” a Chinese end-user said. PetroChina signed a 22-year deal with Qatargas to purchase 3.4 million mt/year starting September. The oil major also sealed two 25-year supply deals earlier this year with Cheniere totaling 1.2 million mt/year, with a portion of the supply beginning this year. CNOOC issued in April a multi-year buy tender seeking a strip of cargoes for delivery between November 2018 and 2022. The major also signed additional winter volumes with other suppliers, according to sources.
The wave of winter volumes has resulted in terminal congestion — strangling Chinese spot demand and depressing spot LNG prices. “With 10-13 inbound vessels every month, terminal slots in the east and north were pre-booked fully with term in-take and earlier procurements,” another Chinese end-user said. “Fully-packed shipping schedules suggest not much feasible room for spot [demand],” the source added.