China’s demand for natural gas, infrastructure to rise even as trade war slows down economy
- Trade war only affects US exporters as China has slapped 25 per cent tariffs on the commodity
- China’s LNG imports could more than double to 111 million tonnes by 2025 from last year, according to Morgan Stanley
China’s appetite for natural gas and infrastructure needs to accommodate imports will grow strongly in the next few years, even as the prolonged trade war slows its economy and stifles purchases from the US, forcing it to look elsewhere, an industry expert says.
“The US-China trade war only affects US exporters because there is more than enough LNG available in the market – from places like Qatar, Australia, Nigeria,” Sveinung Stohle, chief executive of Oslo-based Hoegh LNG, owner of the world’s largest fleet of floating storage and regasification units (FSRU), said in an interview after the opening ceremony of its new Shanghai office.
“[While] China will be able to buy its LNG from other sources … the country needs more import handling capacity.”
Hoegh owns 10 of the world’s 26 operating FSRUs. The company has leased to state-owned China National Offshore Oil Corp the only FSRU deployed in the country – at its gas receiving terminal in Tianjin.
The nation’s other 20 or so fixed onshore terminals – half of which have been built by China National Offshore – account for some 75 million tonnes of annual processing capacity.
The world’s fastest-growing liquefied natural gas market and second largest importer after Japan at 53.8 million tonnes, saw imports rise 17.6 per cent year on year in the first eight months of 2019, customs data shows.
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China’s LNG imports could more than double to 111 million tonnes by 2025 from last year, at an average annual growth of 10.9 per cent, according to a Morgan Stanley forecast.
However, growth slowed down markedly from 40.6 per cent last year and 46.4 per cent in 2017, when demand was fuelled by Beijing’s campaign to use natural gas instead of coal for heating to combat chronic air pollution in the winter.
The US-China trade war – well into its second year of tit-for-tat tariffs and on-and-off negotiations – saw China slap a 10 per cent tariff on US LNG exports in September last year, before increasing it to 25 per cent in June.
As a result, US shipments to China plunged 77 per cent year on year in the first half, after surging 185 per cent in 2017 and 41 per cent last year.
The US last year accounted for just 4 per cent of China’s LNG imports, compared to Australia’s 43.7 per cent and Qatar’s 17 per cent.
By chilling it to minus 160 Celsius, LNG is condensed into one-600th of its volume, turning it into a liquid, making it easy to store and transport. It is transported in giant tanks by ships and re-gasified when it arrives at the destined market and piped to users.
Demand for a quicker way to add regasification capacity to fill a supply gap saw the first FSRU commercially deployed a decade ago. Before that, all LNG import infrastructure was based onshore.
FSRUs became a popular option for emerging gas markets – such as Colombia and Lithuania – that could not afford or prefer not to make expensive long-term commitments on building onshore terminals that can take up to five years.
Hong Kong’s port is failing to ready itself for LNG-fuelled cargo ships as rival Singapore races ahead, say analysts
“For land based terminals, the importers need to invest in the infrastructure themselves, but for FSRU we do the investment and they can lease from us at roughly half the cost per unit of gas imported,” Stohle said. “We can get a FSRU delivered and set up in a few months.”
Despite the slowdown in LNG demand in China, he is confident Hoegh will strike another long term leasing deal in the next one to two years.
“What is going on is the megatrend of replacing coal and oil products with natural gas and renewable energy,” he said. “Renewable energy is fantastic, but when the sun is not shining and the wind is not blowing, you need natural gas to step in.”
