China’s domestic LNG prices continued to decline in August, with the Guangdong benchmark recording a drop of 10% amid weak demand fundamentals and strong domestic production growth.
China’s coastal LNG benchmarks are becoming increasingly important in terms of determining global LNG flows, as they are a crucial indicator of China’s LNG spot appetite.
The Guangdong benchmark averaged about 6% below JKM since the start of the year, largely explaining China’s withdrawal from the LNG spot market, with the country’s spot procurements collapsing by near 40% yoy.
This trends seems to continue into August, with the Guangdong benchmark declining by around 10% compared to August. this is partly driven by weaker gas demand dynamics in the industrial sectors, with China’s PMI falling back to below 50 in July, due to the continue extraction of export orders.
And while demand dynamics remains rather weak, domestic gas production continued to expand strongly, with July output up by 7.5% yoy to reach a new seasonal all-time high. in addition, Russian piped gas deliveries continue to ramp-up, with flows via the Power of Siberia pipeline up up by around 25% yoy.
China’s current LNG demand weakness enables stronger flows towards the European market and ensures healthy storage refill rates. as China’s global LNG balancing role is set to increase, the significance of coastal price benchmarks, such as Guangdong, will gain in importance.
What is your view? how will China’s gas market evolve this year? could we see a recovery in LNG imports towards the end of the year? and how will the TTF-Guangdong spread evolve?
Source: Greg MOLNAR
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