(EnergyAsia, June 26 2015, Friday) — Analysts are reducing their forecasts for China’s natural gas consumption over the next two years in view of a slowing economy, low oil and coal prices, and the high cost of gas-fired electricity.
UK consulting firm Wood Mackenzie has sharply reduced its forecast for Chinese gas demand to 360 billion cubic metres (cbm) in 2020 and 560 bcm in 2030, compared with 420 bcm and 640 bcm previously for the two respective years.
In the short term, Chinese gas demand growth is being held down by low oil prices and high domestic gas prices, reversal of environmental policies, competition from coal and hydro and warmer winter weather, said the firm’s principal gas consultant Gavin Thompson.
Structural factors are also in play as China is developing its services sector to reduce the country’s dependence on heavy industries and manufacturing to continue driving the economy.
The sharp slowdown in China’s gas demand growth appears to have surprised the country’s main gas companies which have signed on to import an annual total of 66 bcm of LNG, including a ramp-up of 23 bcm into the domestic market by 2018. The increasingly oversupplied market is exerting downward pressure on domestic prices and hurting the bottomlines of the gas importers.
According to Wood Mackenzie, the companies are attempting to re-negotiate with suppliers longer import schedules, lower pricing terms and increased flexibility for the resale of their LNG allocations to other markets in the Pacific. Central Asia is a major source of the new LNG supplies into China.
“We expect China will be over-contracted by about 18bcm from 2015 till 2017,” said Mr Thompson.
The state-owned firms will deal with the looming glut by restricting or delaying investment in expensive projects, and maximising contract sales to domestic customers while PetroChina will control the import of pipeline gas using take-or-pay provisions.
“With strong growth in contracted LNG and low prices, we expect that some LNG will be sold back into the broader market,” Mr Thompson said. Some of this will be seasonal – in particular LNG that might otherwise have supplied northern China during the warmer months – but even at times of higher demand it is unlikely that all contracted LNG will find a market in China.
If and when it occurs, an oil price recovery will stimulate Chinese gas demand.
Earlier, the CNPC Economics & Technology Research Institute reported that Chinese gas demand has been growing at a slower rate. It rose 6.9% over the first four months of 2015, compared with a much faster 9.8% for the same period last year. It attributed to the slower demand growth to the weaker pace of China’s economic expansion.